Question

OC, Inc. operates two departments, the A department and the Bldepartment. The following estimates were developed for the most recent year: A Overhead cost $360,000 Machine hours 40,000 Direct labor hours 90,000 B $750,000 60,000 10,000 In March, OC began working on Job #10. The company's cost records show the following information concerning Job #22-B: Direct material cost Direct labor cost Machine hours Direct labor hours А $620 $710 160 430 B $580 $960 540 200 Assume OC applies overhead costs to jobs using departmental overhead rates. Overhead costs from the A department are applied using direct labor hours as the activity level and machine hours is the activity level used in the B Department. Calculate the total cost of Job #10.

Answer 1

For Department A

Department Overhead Rate = Total Estimated Overhead for Department A / Total Direct Labour Hours for Department A

Total Estimated Overhead for Department A = $ 360,000

Total Direct Labour Hours for Department A = 90,000 Hours

Department Overhead Rate = 360,000 / 90,000

Department Overhead Rate = $ 4 per Direct Labour Hour

Department B

Department Overhead Rate = Total Overhead Costs for Department B / Total Machine Hours

Total Overhead Cost for Department B = $ 750,000

Total Machine Hours for Department B = 60,000

Department Overhead Rate = 750,000 / 60,000

Department Overhead Rate = $ 12.5 per Machine Hour

Job 10

Particulars	DepartmentA	DepartmentB
Direct Materials	620	580
Direct Labour	710	960
Overhead Costs	1,720	6,750
Total Costs	3,050	8,290

Total Job Cost for Job 10 = 3,050 + 8,290

Total Job Costs for Job 10 = $ 11,340

Notes

Overhead Cost for Job 10 for Department A = 430 Labour Hours * $ 4 per Labour Hour = $ 1,720

Overhead Costs for Job 10 for Department B = 540 Machine Hours * $ 12.5 per Machine Hour = $ 6,750