Question

White company Has two departments cutting and fishing. The company uses a job order costing system and computed 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.

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 76,000 50,100 1,400 $370,000 $532,000 $ 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: Department Cutting Finishing Direct labor-hours 5 $750 $370 Direct labor cost $437 19 6 82 Machine-hours Direct materials $138 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

Answer 1

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Answer 1 Direct Labor hours Machine Hours Fixed Manufacturing Overhead cost Fixed Manufacturing Overhead rate :(370,000 / 50,100) (532,000 / 76,000) Add: Variable Overhead rate Predetermined Overhead rate Cutting 6,300 50,100 370,000 7.39 3 10.39 Per MH Finishing 76,000 1,400 532,000 7 4 10.75 (0) (ii) (i+ii) Per DLH Answer 2 Direct Labor hours Machine Hours Manufacturing Overheads (Predetermined OH rate * Base) (10.39 * 82) (10.75 * 19) Cutting 6 82 851.59 Finishing 19 5 204.25 Calculation of Manufacturing Cost of Job 203 Direct Material Direct Labor Cost Manufacturing Overheads Manufacturing costs 750 138 851.59 1,739.59 370 437 204.25 1,011.25 Total Manufacturing Cost of Job 203 is $2,751 (1,739.59 + 1,011.25) Rounded off Answer 3 Yes, because a single plantwide rate will subtantially different amounts as it will consider only DLH and not machine hours and because it is not calculated for each department, amount will be subtantially differrent.