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 6,300 78,000 58,200 3,800 $ 400,000 $ 560,000 $ 3.00 $ 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: Direct labor-hours Machine-hours Direct materials Direct labor cont Department Cutting Finishing 3 13 89 3 $770 $370 $ 69 $299 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? Complete the question by entering your answers in the tabs given below. Required 1 Required 2 Required 3 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.) Total manufacturing cost < Required 1 Required 3 >

Answer 1

Answer	Computation of Predetermined Overhead Rate
1
		Department
		Cutting	Finishing
	Direct Labour Hours	6,300.00		78,000.00
	Machine Hours	58,200.00		3,800.00
	Fixed Manufacturing Overhead cost	4,00,000.00		5,60,000.00
	Fixed Manufacturing overhead Rate	6.87	(400000/58200)	7.18	(560000/78000)
	Add: Variable Overhead Rate	3.00	(Given in question)	3.75	(Given in question)
	Predetermined Overhead Rate	9.87	(6.87+3)	10.93	(7.18+3.75)
2
	Step-1
	Computation of Manufacturing Overheads
		Department
		Cutting	Finishing
	Direct Labour Hours	3.00		13.00
	Machine Hours	89.00		3.00
	Predetermined Overhead Rate	9.87	(from answer 1)	10.93	(from answer 1)
	Manufacturing Overheads	878.43	(89*9.87)	142.09	(13*10.93)
	Step-2
	Job Cost Sheet for Job 203
		Department
		Cutting	Finishing
	Direct Material	770.00		370.00
	Direct Labour	69.00		299.00
	Manufacturing Overheads Applied	878.43	(from step-1 solution)	142.09	(from step-1 solution)
	Total Manufacturing Cost for each Department	1,717.43		811.09
	Total Manufacturing Cost for the Job 203	2,528.52	(1717.43+811.09)
3
	Yes. You should expect substantialy different amounts of overhead costs to be assigned to some jobs if the company used a plantwide
	predetermined overhead rate based on direct labour hour rather than using departmental rates.
	Workings:
	Step-1
	Plant Wide Direct Labour Hour Rate =		Total Overheads/Total Labour Hour
	Total Overheads	14,27,100.00	(400000+560000+3*58200+3.75*78000)
	Total Labour Hour	84,300.00	(6300+78000)
	Plant Wide Direct Labour Hour Rate	16.93	(1427100/84300)
	Step-2
	Computation of Manufacturing Overheads
		Department
		Cutting	Finishing
	Direct Labour Hours	3.00		13.00
	Predetermined Plantwide Overhead Rate	16.93	(from Step -1 workings)	16.93	(from Step -1 workings)
	Manufacturing Overheads when Plant Wide
	Labour Overhead Rate applied	50.79	(3*16.93)	220.09	(13*16.93)
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