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:

	Department
	Cutting		Finishing
Direct labor-hours		7,800		86,000
Machine-hours		52,200		2,200
Total fixed manufacturing overhead cost	$	370,000	$	481,000
Variable manufacturing overhead per machine-hour	$	2.00		—
Variable manufacturing overhead per direct labor-hour		—	$	2.75

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:

	Department
	Cutting				Finishing
Direct labor-hours			3				16
Machine-hours			88				5
Direct materials		$	750			$	350
Direct labor cost		$	72			$	384

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.

Answer 1

1	The predetermined overhead rate for each depratment
		Department
		Cutting	Finishing
	Total fixed manufacturing overhead cost	$370,000	$481,000
	Machine Hours	52,200
	Direct labour hours		86,000
	Fixed overhead per machine hour	$7.09
	Fixed overhead per direct labour hour		$5.59
	Variable overhead per machine hour	$2.00
	Variable overhead per direct labour hour		$2.75
	Predetermined overhead rate per machine hour	$9.09
	Predetermined overhead rate per direct labour hour		$8.34
2	Total manufacturing cost assigned to Job 203
		Department
		Cutting	Finishing	Total
	Direct Materials	$750.00	$350.00	$1,100.00
	Direct labour cost	$72.00	$384.00	$456.00
	Manufacturing overhead	$799.75	$133.49	$933.24
	Total cost	$1,621.75	$867.49	$2,489.24
	Note:
		Department
		Cutting	Finishing
	Manufacturing overhead	=88*$9.09	=16*$8.34