Question

Tinkle-Tinkle Glass Company makes glass globe paper weights for desks. The company uses a job-order cost system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Fabrication Department is based on machine hours, and the rate in the Finishing Department is based on direct labor hours. At the beginning of the year, the company’s management made the following estimates for the year:

                                                                                                            Department

                                                                                                Fabrication       Finishing

Machine hours                                                                         84,000                       27,000

Direct labor hours                                                                    28,000                       44,000

Direct material cost                                                                 $415,000                     $214,000

Direct labor cost                                                                     $300,000                     $690,000

Fixed manufacturing overhead cost                                        $800,000           $280,000       

Variable manufacturing overhead per machine hour                   $2.25                              --

Variable manufacturing overhead per direct labor hour                               --                  $2.15

Job 25 (the Christmas holiday special) was started on September 1 and completed on September 30. The company’s cost records show the following information concerning the job:

                                                                                                            Department     

                                                                                                Fabrication       Finishing

Machine hours                                                                                  310                  75

Direct labor hours                                                                             110                133

Direct materials cost                                                                     $1,320        $1,050

Direct labor cost                                                                               $910           1,095

• Compute the predetermined overhead rate used during the year in the Fabrication Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the predetermined overhead rate used during the year in the Finishing Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the total overhead cost applied to Job 25 (in dollars and cents).

• What would be the total cost recorded for Job 25? (Round to two decimal places.)

• If Job 25 contained 65 units, what would be the unit product cost? (Round to two decimal places.)

• If it contained 750 units, what would be the unit product cost? (Round to two decimal places.)

• At the end of the year, the records of Tinkle-Tinkle Glass revealed the following actual cost and

operating data for all jobs during the year:

                                                                                                            Department

                                                                                                Fabrication       Finishing

Machines hours                                                                                      85,900              30,000

Direct labor hours                                                                       32,500              29,000

Direct materials cost                                                                $425,000         $163,000

Manufacturing overhead cost                                                  $713,000         $288,000        

What was the amount of actual overhead in each department at the end of the year? Was it underapplied or overapplied? (You should have a total of four answers for this question.)

Answer 1

Solution:

1. Predetermined OH rate in the Fabrication Dept. = Total estimated fixed OH costs / Machine hours

   = $800,000 / 84,000

   = $9.52 (rounded off)

2. Predetermined OH rate in Finishing Dept. = Total estimated fixed OH costs / Direct labor hours

   = $280,000 / 44,000

   = $6.36 (Rounded off)

3. Overhead cost applied to Job 25 can be computed as follows:

JOB 25 Fabrication Dept. Finishing Dept. Total Overhead cost applied $ 2,951.2 $ 477 $3,428.20 (310x$9.52) (75x$6.36)

4. Total cost recorded can be computed as follows:

JOB 25 2,370 Direct material cost ($1,320 + 1,050) Direct labor cost ($910 + 1,095) Manufacturing Overhead Total cost recorded 2,005 3,428 $ 7,803.20

5. Unit product cost = $7,803.20 / 65 = $120.05

6. Unit product cost = $7,803.20 / 750 = $10.40

7.

JOB 25 Fabrication Dept. Finishing Dept. Acutal Overhead cost applied $ 817,768 $ 184,440 (85,900x$9.52) (29,000>$6.36) Actual OH cost incurred After comparing Both costs $ 713,000 $ 288,000 Overapplied Underapplied