Question

Problem 5-24: Wood Grain Technology makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead costs to jobs. The predetermined overhead rate in the Preparation Department is based on machine-hours, and the rate in the Fabrication Department is based on direct materials cost. At the beginning of the year, the company's management made the following estimates for the year: Department Preparation Fabrication Machine-hours 80,000 21,000 Direct labour-hours 35,000 65,000 Direct materials cost $190,000 $400,000 Direct labour cost $280,000 $530,000 Manufacturing overhead cost $416,000 $720,000 Job 127 was started on April 1 and completed on May 12. The company's cost records show the following information concerning the job:

Answer 1

Part 1

	Predetermined overhead rate
Preparation Department	$5.20 per MH
Fabrication Department	180% of materials cost

Preparation Department predetermined overhead rate:

Predetermined overhead rate=Estimated total manufacturing overhead cost / Estimated total amount of the allocation base = $416,000 / 80,000 machine-hour = $5.20 per machine-hour

Fabrication Department predetermined overhead rate:

Predetermined overhead rate=Estimated total manufacturing overhead cost /Estimated total amount of the allocation base=$720,000 / $400,000 materials cost = 180% materials cost

Part 2

Total overhead cost

$3980

Preparation Department overhead applied:
350 machine-hours × $5.20 per machine-hour	1820
Fabrication Department overhead applied:
$1,200 direct materials cost × 180%	2160
Total overhead cost	$3980

Part 3-a

	Department
	Preparation	Fabrication	Total
Direct materials	940	1200	2140
Direct labor	710	980	1690
Manufacturing overhead	1820	2160	3980
Total cost	3470	4340	7810

Part 3-b

Unit product cost

$312.40

Unit product cost for Job 127: Average cost per unit =$7,810/25 units = $312.40 per unit

Part 4

Preparation department	Underapplied overhead	$10400
Fabrication department	Overapplied overhead	$(16000)

	preparation	Fabrication
Manufacturing overhead cost incurred	390000	740000
Manufacturing overhead cost applied:
73,000 machine-hours × $5.20 per machine-hour	379600
$420,000 direct materials cost × 180%		756000
Underapplied (or overapplied) overhead	10400	(16000)