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 7,800 68,000 66,700 3,600 $ 380,000 $ 420,000 $ 2.00 $ 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 6 15 88 5 $780 S 360 $126 $315

Answer 1

1)	Predetermined overhead rate
	Cutting department
	Fixed manufacturing overhead			(380000/66700)		5.70
	Variable manufacturing overhead per machiner hour					2
	Predetermined overhead rate					7.70	per machine hr
	finishing department
	Fixed manufacturing overhead			(420000/68000)=		6.18
	Variable manufacturing overhead per labor hour					4.75
	Predetermined overhead rate					10.93	per direct labor hr
2)	Total manufacturing cost
					Cutting	Finishing	total
	Direct materials				780	360	1140
	direct labor				126	315	441
	overhead assigned
	cutting	(7.7*88)=			677.6		677.6
	finishing	(10.93*15)				163.95	163.95
	Total manufacturing cost				1584	839	2423
3)	Yes, as we can see that cutting department uses less labor and hence the
	overhead assigned will be quite less