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 7,800 64,000 68,300 3,600 $ 390,000 $ 445,000 $ 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 10 84 Direct labor-hours Machine-hours Direct materials Direct labor cost $ 710 $120 $390 $ 240 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) Predetermine overhead rate

	Cutting	Finishing
Predetermine overhead rate	(390000/68300+3) = 8.71 per MH	445000/64000+3.75 = 10.70 per DLH

2) Total manufacturing cost

	Cutting	Finishing	Total
Direct material	710	390	1100
Direct labor	120	240	360
Overhead	84*8.71 = 732	10.7*10 = 107	829
Total	1562	737	2299

3) Yes