Question

Panther Corporation has two production departments, Purple and Gold. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Purple Department's predetermined overhead rate is based on machine-hours and the Gold Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

PurpleGold

Machine-hours12,00015,000

Direct labor-hours2,0007,000

Total fixed manufacturing overhead cost$138,000$58,100

Variable manufacturing overhead per machine-hour$2.3

Variable manufacturing overhead per direct labor-hour$3

During the current month the company started and finished Job A460. The following data were recorded for this job:

Job A460:PurpleGold

Machine-hours8010

Direct labor-hours3050

The amount of overhead applied in the Purple Department to Job A460 is closest to:

Answer 1

Facts of the Question:

Budgeted data:

	Purple	Gold
Machine-hours	12,000	15,000
Direct Labor-hours	2,000	7,000
Total Fixed Manufacturing overhead cost	$        138,000	$        58,100

Actual Data for Job A460:

Job A460
	Purple	Gold
Machine-hours	80	10
Direct Labor-hours	30	50

Answer)

Calculation of Overhead applied in Purple Department to Job A460

Total overhead cost applied in purple department to Job A460 = (Total fixed manufacturing overhead of Job A460 in purple department) + (Total Variable manufacturing overhead of Job A460 in purple department)

                                                                                              = (Predetermined fixed overhead rate per machine hour X number of machine hours worked on Job A460 in purple department) + (Variable overhead rate per machine hour X number of machine hours worked on Job A460 in purple department)

                                                                             = ($ 11.50 per machine hour X 80 machine hours) + ($ 2.30 per machine hour X $ 80 machine hours)

                                                                              = $ 1,104

Therefore overhead applied in Purple department to Job A460 is $ 1,104.

Working Note:

Calculation of predetermined fixed overhead rate in purple department (based on machine hours)

Predetermined fixed overhead rate = Total estimated fixed manufacturing overhead cost in purple department/ Total Budgeted machine hours in purple department

                                                                         = $ 138,000/ 12,000 machine hours

                                                                          = $ 11.50 per machine hour