Question

Exercise 2-13 Departmental Predetermined Overhead Rates (LO2-1, LO2-2, LO2-4) 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 6,000 62,000 68,300 2,400 $ 380,000 $ 549,000 $ 4.00 $ 4.75 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 Direct materials Direct labor cost Department Cutting Finishing 4 14 81 3 $ 740 $360 $ 72 $252

Answer 1

1
Predetermined overhead rate:
Cutting	9.56	per MH	=4.00+(380000/68300)
Finishing	13.60	per DLH	=4.75+(549000/62000)
2
Direct materials	1100.00		=740+360
Direct labor cost	324.00		=72+252
Overhead applied:
Cutting	774.36		=81*9.56
Finishing	190.40		=14*13.60
Total manufacturing cost	2389	or 2388

3

Yes

Jobs requiring small amount of direct labor hours would substantially be charged less overhead cost using plantwide overhead rate.