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 6,600 62,000 60,900 3,200 $360,000 $ 522,000 $ 4.00 $ 4.75 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 cost Department Cutting Finishing 3 14 90 6 $ 770 $ 390 $ 69 $ 322 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

1. Predetermined overhead rate

Cutting =$603,600/60,900 =$9.91

($360,000+ 60,900×$4)

Finishing =$816,500/62,000 =$13.16

($522,000+ 62,000×$4.75)

2.

	Cutting	Finishing
Direct materials	$770	$390
Direct labor	$69	$322
Manufacturing overhead	$892	$184.24
Total manufacturing costs	$1,731	$896.24

3.

Yes, the company used a plantwide predetermined overhead rate based on direct Labor hours