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 coat Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Department Cutting Pinishing 6.300 78,000 58,200 3,800 $ 400,000 $ 560.000 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: Direet labor-hours Machine-hours Direct materiale Direct labor coat Department Cutting Finishing 23 13 $770 $ 370 $ 69 $299 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Jol 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 Would you expect substantially different amounts of overhead cost to be assigned to some jobs in the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates? Yes No < Required 2

Answer 1

1. Predetermined Overhead rate
Cutting = $3 + 400000 / 58200 = $9.87 per machine hour
Finishing = $3.75 + 560000 / 78000 = $10.93 per labor hour

2.
Overhead applied = 89 x $9.87 + 13 x $10.93 = $1020.52

Total Manufacturing Cost = $770+370+69+299+1020.52 = $2528.52

3.
Yes
Since Machine hours are used in higher proportion.

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