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 64,000 Machine-hours 65,000 1,300 Total fixed manufacturing overhead cost $360,000 $488,600 Variable manufacturing overhead per machine-hour 4.00 Variable manufacturing overhead per direct labor-hour 3.75 6,600 $ $ 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 Direct materials Direct labor cost Department Cutting Finishing 3 17 90 4 $750 $350 $ 60 $340 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 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

Answer 1

(1)

Cutting Department

The estimated total manufacturing overhead cost in the cutting department is computed as follows:

Y = $360,000 + ( $4 per MH × 65,000 MH )

Estimated fixed manufacturing overhead	$360,000
Estimated variable manufacturing overhead (4 ×65,000)	$260,000
Estimated total manufacturing overhead cost	$620,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)	$620,000
Estimated total machine-hours (b)	65,000
Predetermined overhead rate (a) ÷(b)	$9.54

Finishing Department

The estimated total manufacturing overhead cost in the Finishing Department is computed as follows:

Y= 488,000 + ( 3.75 per labour hour × 64,000 )

Estimated fixed manufacturing overhead	$488,000
Estimated variable manufacturing overhead(64,000 × 3.75)	$240,000
Estimated total manufacturing overhead cost	$728,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)	$728,000
Estimated total direct labour hours (b)	64,000
Predetermined overhead rate (a) ÷ (b)	$11.38

(2)

Total manufacturing cost assigned to Job 203:
Direct materials (750+350)	$1100
Direct labour (60+340)	$400
Cutting Department (90×9.54)	$858.6
Finishing Department(17×11.38)	$193.46
Total manufacturing cost	$2552.06

(3)

Yes; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide overhead rate based on direct labor hours were used. It appears, for example, that this would be true of Job 203 which required considerable machine time to complete, but required a relatively small amount of labor hours