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 labour cost. At the beginning of the year, the company made the following estimates: 11 Department Cutting Finishing 6,500 34,500 48,750 4,500 $ 187,500 $553,500 $ 65,000 $307,500 Direct labour-hours Machine-hours Manufacturing overhead cost Direct labour cost 8.33 points Required: 1. Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.) Department Cutting Finishing per MH % of DLC Predetermined overhead rate 2. Assume that the overhead rates that you computed in Requirement (1) are in effect. The job cost sheet for job 203, which was started and completed during the year, showed the following: Direct labour-hours Machine-hours Materials requisitioned Direct labour cost Department Cutting Finishing 8 25 75 5 $500 $350 $ 88 $165 Compute the total overhead cost applied to job 203. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Answer 1

Answer to Requirement 1:

Cutting Department:

Predetermined overhead rate = Manufacturing overhead cost / Machine hours
Predetermined overhead rate = $487,500 / 48,750
Predetermined overhead rate = $10.00 per machine hour

Finishing Department:

Predetermined overhead rate = Manufacturing overhead cost / Direct labour cost
Predetermined overhead rate = $553,500 / $307,500
Predetermined overhead rate = 180% of direct labor cost

Answer to Requirement 2:

Cutting Department:

Manufacturing overhead applied = Predetermined overhead rate * Machine hour
Manufacturing overhead applied = $10.00 * 75
Manufacturing overhead applied = $750

Manufacturing cost = Direct materials + Direct labour cost + Manufacturing overhead applied
Manufacturing cost = $540 + $88 + $750
Manufacturing cost = $1,378

Finishing Department:

Manufacturing overhead applied = Predetermined overhead rate * Direct labour cost
Manufacturing overhead applied = 180% * $165
Manufacturing overhead applied = $297

Manufacturing cost = Direct materials + Direct labour cost + Manufacturing overhead applied
Manufacturing cost = $350 + $165 + $297
Manufacturing cost = $812

Total overhead cost applied to Job 203 = Manufacturing cost for Cutting Department + Manufacturing cost for Finishing Department
Total overhead cost applied to Job 203 = $1,378 + $812
Total overhead cost applied to Job 203 = $2,190