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 6,700 80,000
Machine-hours 51,400 3,300
Total fixed manufacturing overhead cost $ 380,000 $ 430,000
Variable manufacturing overhead per machine-hour $ 3.00 —
Variable manufacturing overhead per direct labor-hour — $ 3.75

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
Direct labor-hours 3 12
Machine-hours 90 3
Direct materials $ 780 $ 350
Direct labor cost $ 69 $ 276
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

Answer:

Instructuons are listed below.

Explanation:

Giving the following information:

The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours.

Department

Cutting Finishing

Direct labor-hours 6,700 80,000

Machine-hours 51,400 3,300

Total fixed manufacturing overhead cost $ 380,000 $ 430,000

Variable manufacturing overhead per machine-hour $ 3.00 —

Variable manufacturing overhead per direct labor-hour — $ 3.75

A) To calculate the estimated manufacturing overhead rate, we need to use the following formula for each department:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Cutting:

Estimated manufacturing overhead rate= (380,000/51,400) + 3= $10.39 per machine hour

Finishing:

Estimated manufacturing overhead rate= (430,000/80,000) + 3.75= $9.13 per direct labor hour

B)Total cost= direct material + direct labor + allocated overhead

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Cutting= 10.39*90= 935.1

Finishing= 9.13*12= 109.56

Total cost= (780 + 350) + (69 + 276) + (935.1 + 109.56)= $2,519.66

C)  Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= [(380,000 + 430,000)/ (6,700 + 80,000)] + (3 + 3.75)= $16.09 per direct labor hour

On Job 203:

Allocated MOH= 16.09*15= 241.35

The allocated MOH is considerably lower.