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:

Department

Cutting Finishing

Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 30,000

Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 5,000

Total fixed manufacturing overhead cost . . . . . . . . . . . . . . . . $264,000 $366,000

Variable manufacturing overhead per machine-hour . . . . . . .... $2.00 —

Variable manufacturing overhead per direct labor-hour . . . . . — $4.00

1. Compute the predetermined overhead rate to be used in each department.

2. Assume that the overhead rates that you computed in (1) above are in effect. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

Department

Cutting Finishing

Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 20

Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 4

Materials requisitioned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500 $310

Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70 $150

Required:

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 overhead rate based on direct labor-hours, rather than using departmental rates? Explain. No computations are necessary.

Answer 1

		Department
		Cutting	Finishing
	Direct labor-hours	6,000	30,000
	Machine-hours	48,000	5,000
	Total fixed manufacturing overhead cost	$264,000	$366,000
	Variable manufacturing overhead per machine-hour	$2.00	-
	Variable manufacturing overhead per direct labor-hour	-	$4.00
Req. 1		Cutting	Finishing
	Total Manufacturing Overhead cost (a)	360000	486000
		=264000+2*48000	=366000+4*30000
	÷ Overhead allocation base (b)	÷ 48000	÷ 30000
	Predetermned Overhead rate (a) ÷ (b)	7.5	16.2
	Given Data	Department
		Cutting	Finishing
	Direct labor-hours	6	20
	Machine-hours	80	4
	Materials requisitioned	$500	$310
	Direct labor cost	$70	$150
		Department
Req 2		Cutting	Finishing
	Materials requisitioned	$500	$310
	Direct labor cost	$70	$150
	Manufacturing Overhead(80 x $7.5; 20 x $16.20)	600	324
	Total Manufacturinng cost	$1,170	$784
Req 3	Yes, if plantwide overhead rate would be used allocation of overhead would be changed
	since in present case only respective hours in particular department is used, and for plantwide
	rate per direct labor hour would be used that will be lower than present case.