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 7,700 85,000 64,700 1,200 $390,000 $450,000 $ 4.00 $ 2.75 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 15 85 4 $ 780 $ 370 $ 72 $ 270 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 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round intermediate calculations to 2 decimal places and final answer to the nearest dollar amount) Total manufacturing cost < Required 1 Required 3 >

Answer 1

1)	Predetermined overhead rate
	Cutting department
	Fixed manufacturing overhead			(390000/64700)=		6.03
	Variable manufacturing overhead per machiner hour					4.00
	Predetermined overhead rate					10.03	per machine hr
	finishing department
	Fixed manufacturing overhead			(450000/85000)=		5.29
	Variable manufacturing overhead per machiner hour					2.75
	Predetermined overhead rate					8.04	per direct labor hr
2)	Total manufacturing cost
					Cutting	Finishing	total
	Direct materials				780	370	1150
	direct labor				72	270	342
	overhead assigned
	cutting	(10.03*85)			853		853
	finishing	(8.04*15)				121	121
	total				1705	761	2465
	total manufacturing cost			2465	answer
3)	Yes, as we can see that cutting department uses less labor and hence the
	overhead assigned will be quite less
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