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 8,200 84,000 53,700 1,500 $ 400,000 $ 438,000 $ 3.00 - - $ 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: Department Cutting Finishing 5 13 4 Direct labor-hours Machine-hours Direct materials Direct labor cost 89 $ 800 $ 95 $390 $247 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?

Answer 1

Department Answer Parti finishing Cutting 84000 53700 Direct labours Hans Machine Hours Variable Manufacturing Overhead for Wocheria Hair Variable eff orehead per direct Leban- lair Total Variable Monufacturing OH $2.75 53700X3 - 161, 100 84000 82.75 -231000 4 38000 Total Fixed Manufacturing 4,00,000 231670 + 438000 Total Manufacturing Overhead = 1,61, 100 Cost +4,00,000 25,61,100 6, 69,000 689.000 Predetermaried Orechead Rate = 5,61,100 53700 84000 = 10.45 = 7.96 * formula for fredetermined Overhead Rate - Total Manufacturing OH Coet Direct Labour Hours Machine Hours Note :- It has been said that in department Cutting, Orecheads care allocated on basis of Machine Hours and in finishing department Orcheads are allocated on the basis of Direct Labour Hours.

Partu) Computation of Total Manufacturing Cost ( Job 203) Cutting Finishing 95 (1) Direct Material 800 390 (ii) direct Labor Cost 247 (ni) Manufacturing Overhead Cost 8 9 hours X 10.45) 13 houn X 7.96 As it is said that the predetermined = 930.05 103:48 orchead rate is to be taken from part (in Total Manufacturing Cost 740.48 for 1825:05 Job 203 Total Manufacturing Cost for Job 203 = $1825.05 + $740.48 - $2565:53 Part 1:3) Yes, the amount will substantially change, if instead of departmental rates, the company uses a plantwide determined orechead rate because calculation of predetermined orehead rate includes variable portion of manufacturing cost.