Question

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Direct labor-hours Machine-hours Total fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Department Cutting Finishing 8,500 90,000 60,700 1,100 $ 390,000 $ 463,000 $ 3.00 - - $ 3.75 Required: 1. Compute the predetermined overhead rate for each department. 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: Department Cutting Finishing 13 4 Direct labor-hours Machine-hours Direct materials Direct labor cost 6 87 $ 780 $ 120 $380 $260 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Answer 1

1
Predetermined overhead	Estimated manufacturing costs/Allocation base
Predetermined overhead cutting	((390,000)+(3*60,700))/60,700
Predetermined overhead cutting	$9.43	per machine hour
Predetermined overhead finishing	((463,000)+(3.75*90,000))/90,000
Predetermined overhead finishing	$8.89	per direct labor hours
2.
Total manufacturing costs assigned to Job 203
Direct materials	$1,160.00	(780+380)
Direct labor costs	$380.00	(120+260)
Manufacturing overhead	$935.61	(87*9.43)+(13*8.89)
Total manufacturing costs	$2,475.61
3.
If plantwide overhead rate was used then overhead cost assignd to some jobs would be different then under departmental rates
Thus, the answer is yes.