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: Department Cutting Finishing Direct labor-hours 6,700 76,000 Machine-hours 58,200 3,600 Total fixed manufacturing overhead cost $ 380,000 $ 406,000 Variable manufacturing overhead per machine-hour $ 4.00 — Variable manufacturing overhead per direct labor-hour — $ 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 Direct labor-hours 4 13 Machine-hours 85 5 Direct materials $ 720 $ 370 Direct labor cost $ 84 $ 273 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)	Predetermined overhead rate
	Cutting department
	Fixed manufacturing overhead			(380000/58200)		6.53
	Variable manufacturing overhead per machiner hour					4.00
	Predetermined overhead rate					10.53	per machine hr
	finishing department
	Fixed manufacturing overhead			(406000/76000)=		5.34
	Variable manufacturing overhead per machiner hour					3.75
	Predetermined overhead rate					9.09	per direct labor hr
2)	Total manufacturing cost
					Cutting	Finishing	total
	Direct materials				720	370	1090
	direct labor				84	273	357
	overhead assigned
	cutting	(10.53*85)			895		895
	finishing	(13*9.09)				129	129
	total				1699	772	2471
3)	Yes, as we can see that cutting department uses less labor and hence the
	overhead assigned will be quite less