Question

Comans Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department’s predetermined overhead rate is based on machine-hours and the Customizing Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

	Milling		Customizing
Machine-hours		18,000		13,000
Direct labor-hours		4,000		7,000
Total fixed manufacturing overhead cost	$	113,400	$	64,400
Variable manufacturing overhead per machine-hour	$	1.60
Variable manufacturing overhead per direct labor-hour			$	3.90

During the current month the company started and finished Job A319. The following data were recorded for this job:

Job A319:	Milling		Customizing
Machine-hours		60		10
Direct labor-hours		20		60
Direct materials	$	655	$	305
Direct labor cost	$	400	$	1,200

The amount of overhead applied in the Milling Department to Job A319 is closest to:

142200.00

552.00

96.00

474.00

Answer 1

D) $474.00

Milling Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department) = $113,400 + ($1.60 per machine-hour × 18,000 machine-hours) = $113,400 + $28,800 = $142,200

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $142,200 ÷ 18,000 machine-hours = $7.90 per machine-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $7.90 per machine-hour × 60 machine-hours = $474