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 6,300 78,000 58,200 3,800 $ 400,000 $ 560,000 s 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: Direct labor-hours Machine-hours Direet materiala Direct labor cost Department Cutting Finishing 13 89 S 770 $370 $ 69 $299 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? Complete the question by entering your answers in the tabs given below. Required 1 Required 2 Required 3 Compute the predetermined overhead rate for each department. (Round your answers to 2 decimal places) Department Cutting Finishing Predetermined overhead rate per MH per DLH Required Required 2 >

Answer 1

a.

Cutting Finishing $400,000 $560,000 Estimated fixed manufacturing overhead Estimated variable manufacturing overhead Cutting (58200 * 3) Finishing (78000 * 3.75) Estimated total manufacturing overhead (a) Estimated total machine hours (6) $174.600 $292,500 $852,500 $574,600 58200 78000 Estimated total direct labor hours (c) Predetermined overhead rate - Cutting (a/b) Predetermined overhead rate - Finishing (a/c) $9.87 $10.93

b.

Direct materials (770+370) Direct labor (69+299) Overheads - Cutting (89*9.87) Overheads - Finished (13*10.93) Total manufacturing cost 1140 368 878.43 142.09 2528.52

c.

Yes, the overhead cost will differ if the plant wide overhead rate is preferred. In cases where there is high machine hours used and low labor hours used then there will be less amount of overhead cost if plantwide rate on direct labor hours used.