Question

Wilmington Company has two manufacturing departments--Assembly and Fabrication. It considers all of its manufacturing overhead costs to be fixed costs. The first set of data that is shown below is based on estimates from the beginning of the year. The second set of data relates to one particular job completed during the year--Job Bravo.

Required: 

1. If Wilmington used a plantwide predetermined overhead rate based on direct labor-hours, how much manufacturing overhead would be applied to Job Bravo?

2. 2. If Wilmington uses departmental predetermined overhead rates with direct labor-hours as the allocation base in Assembly and machine-hours as the allocation base in Fabrication, how much manufacturing overhead would be applied to Job Bravo? 

   
   

Answer 1

1.         The predetermined plant wide overhead rate is computed as follows:

Estimated manufacturing overhead (a).............................	$1,400,000
Estimated total direct labor-hours (b)...............................	80,000	DLHs
Predetermined overhead rate (a) ÷ (b)..............................	$17.50	per DLH

            The overhead applied to Job Bravo is computed as follows:

Direct labor-hours worked on Bravo (a)...........................	14
Predetermined overhead rate (b)......................................	$17.50	per DLH
Overhead applied to Bravo (a) × (b).................................	$245

2.         The predetermined overhead rate in Assembly is computed as follows:

Estimated manufacturing overhead (a).............................	$600,000
Estimated total direct labor-hours (b)...............................	50,000	DLHs
Predetermined overhead rate (a) ÷ (b)..............................	$12.00	per DLH

      The predetermined overhead rate in Fabrication is computed as follows:

Estimated manufacturing overhead (a).............................	$800,000
Estimated total machine-hours (b)....................................	100,000	MHs
Predetermined overhead rate (a) ÷ (b)..............................	$8.00	per MH

            The overhead applied to Job Bravo is computed as follows:

	Assembly	Fabrication	Total
Quantity of allocation base used (a)..................	11	6
Predetermined overhead rate (b).......................	$12.00	$8.00
Overhead applied to Bravo (a) × (b)..................	$132	$48	$180