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: eBook Direct labor-hours Machine-hours Total fixed namatacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Department Cutting Finishing 6, 700 90,000 69 300 3.400 290,000 $ 95.000 $ 3.00 - $ 3.75 Print 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 Direct labor-hours Machine-hours Direct materials Direct labor cost $ 780 $ 120 $ 350 3264 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? Complete the question by entering your answers in the tabs given below. < Prey 6 of 10 !!! Next >

Answer 1

Please find attached table showing computations and answers to the questions are "Grey shaded":

3) Total (Plant wide predetermined rate based Total (Department wise) on direct labor hrs) 975,000.00 Ref Cutting Finishing 390,000.00 585,000.00 69,300.00 90,000.00 | в 96,700.00 D=(A/B) & (A/C) Fixed OH Machine Hrs Direct Labor hrs Fixed OH Rate (Cutting = Fixed OH / Machine hrs and Finishing= Fixed OH / Direct Labor hrs) Variable OH Rate 1) Total OH Rate (Fixed + Variable) Job Cost Sheet for Job 203: Direct Material Direct Labor Machine hrs Direct Labor hrs 5.63 3.00 8.63 6.50 3.75 10.25 10.08 3.75 13.83 F=D+E 18.88 780.00 120.00 81.00 350.00 264.00 1,130.00 384.00 1,130.00 384.00 11.00 16.00 ()*F) OH 2) Total Manufacturing Cost K=I*F) & G+H+K 699.03 1,599.03 112.75 726.75 811.78 2,325.78 2,325.78 221.28 1,735.28 1,735.28 34.03%

1) Pre determined OH Rate: Cutting- $ 8.63 per machine hr and Finishing -$ 10.25 per Direct Labor hr

2) Total Manufacturing Cost: $ 2,325.78

3) Yes. There exists substantial difference of upto 34% if company adopts plant wide oh rate based on direct labor hrs, rather than departmental rates.