Question

Assume a company has two manufacturing departments - Assembly and Fabrication. The company considers all of its manufacturing overhead costs to be fixed costs. The first set of data below is budgeted data for the company as a whole that was estimated at the beginning of the year. The second set of data below is actual data for the company as a whole that was derived at the end of the year. The third set of data relates to one particular job completed during the year-Job Z. Budgeted Data Assembly Fabrication Manufacturing overhead costs $300,000 $ 400,000 Direct labor hours 25,000 15,000 Machine hours 10,000 50,000 Actual Data Manufacturing overhead costs Direct labor hours Machine hours Assembly Fabrication $ 330,000 $380,000 27,000 16,000 10,500 48,000 Job z Direct labor hours Machine hours Assembly 10 hours 1 hour Fabrication 2 hours 7 hours Assume the company uses departmental predetermined overhead rates. It uses direct labor hours as the allocation base in Assembly and machine hours as the allocation base in Fabrication. What is the predetermined overhead rate in the Assembly Department?

Answer 1

Answer :

(1) Predetermined overhead rate in Assembly Division

= Budgeted  manufactring overhead / Budgeted Labor hour

= $ 300000/25000

= $ 12 per labor hour

(2) Predetermined plantwide overhead rate

= Fixed overhead rate + Variable overhead rate

= $ 218000 /55000 + $ 2

= $ 3.96 + $ 2

= $ 5.96 ( Approx)

(3) Plantwide predetermined overhead rate

= Budgeted manufacturing overhead / Budgeted labor hour

= $ 300000+ $ 400000 / 25000 hour + 15000 hour

= $ 700000 / 40000

= $ 17.50 per hour

(4) Total Job cost = $ 800

	Job X
Direct material	$ 200
Direct Labor	$ 250
Overhead applied $ 250*140 %	$ 350
Total Job cost	$ 800