Question

per unit would avoit 5. If Moody hired you as a consultant to critique its pricing methodology, what would you say? EXERCISE 2-13 Departmental Predetermined Overhead Rates 102-1, 102-2.402-4 White Company has two departments. Cutting and Finishing. The company uses a job-order costing sys- tem and computes a predetermined overhead rate in cach department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases unite on direct labor-hours. At the beginning of the year, the company made me wangent Department Cutting Finishing 30,000 5,000 Direct labor hours. Machine-hours. Total fixed manufacturing overhead cost Variable manufacturing overed percine-hour Variable manufacturing overheid perechinor hour 6.000 48.000 $264,000 $200 $366,000 $4.00 Required: 1. Compute the predetermined overheado s departe

Please give a detailed explanation for solving problem

Answer 1

1)

overhead for each department	Cutting	Finishing
Manufacturing fixed manufacturing O/H	264000	360000
Overhead based	Machine hr	Labour hour
Machine hour	48000
Labour hour		30000
overhead for each department	Budgeted overhead/machine hour	Budgeted overhead/Budgeted labour hour
	264000/48000	360000/30000
overhead for each department	5.5	12
Variable Manufacturing O/h	2	4
Total manufacturing o/h machine hour	5.5+2=7.5
Total manufacturing o/h labour hour		12+4=16

2)

Particular	Cutting	Finishing
Direct Material	500	310
Direct Labour	108	360
Direct Cost	608	670
Manufacturing Overhead	600	320
Total Cost	1,208	990
Working
	Cutting	Finishing
Machine hours	80
Labour hours		20
Pre-determined O/h	$7.5 per machine hour	$16 per labour hr
overhead	Machine hours*predetermined rate	Labour hours*predetermined rate
	80*7.5	20*16
Overhead	600	320

3) Yes, there would be substantially different cost assigned to some jobs as all Overhead costs may not bear any relationship with direct labor hours and may not use labour hours in the same proportion