Question

WoodGrain Technology makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Preparation Department is based on direct material costs, and the rate in the Fabrication Department is based on direct labour hours. At the beginning of the year, the company’s management made the following estimates for the year:

	Department
	Preparation			Fabrication
Machine-hours		80,000			21,000
Direct labour-hours		35,000			65,000
Direct materials cost	$	190,000		$	400,000
Direct labour cost	$	280,000		$	530,000
Manufacturing overhead cost	$	426,000		$	740,000

Job 127 was started on April 1 and completed on May 12. The company’s cost records show the following information concerning the job:

	Department
	Preparation			Fabrication
Machine-hours		360			80
Direct labour-hours		90			140
Direct materials cost	$	950		$	1,300
Direct labour cost	$	720		$	990

Required:

1. Compute the predetermined overhead rate used during the year in the Preparation Department. Compute the rate used in the Fabrication Department.

2. Compute the total overhead cost applied to Job 127.

3. What would be the total cost recorded for Job 127?

Answer 1

Predetermined overhead rate use during the year in the Preparation Department = Manufacturing Overhead Cost in Preparation Department/Direct Material Cost in Preparation Department

= 426,000/190,000

= $2.242105 per dollar of Direct Material Cost

.

.

Predetermined overhead rate use during the year in the Fabrication Department = Manufacturing Overhead Cost in the Fabrication Department/Direct Labor Hours in the Fabrication Department

= 740,000/65,000

= $11.38462 per Direct Labor Hour

.

.

Total Overhead Cost applied to Job 127:

Particulars	Working	Amount ($)
Overhead Cost applied in Preparation Department	($950*2.242105)	2,130.00
Overhead Cost applied in Fabrication Department	(140 Hrs*11.38462)	1,593.85
	Total OH Cost :	3,723.85
Total Cost recorded for Job 127:	Amount($)
Preparation Department:
Direct Material Cost	950
Direct Labor Cost	720
Overhead Cost applied in Preparation Department	2130
Total Cost in Preparation Department: (A)	3800
Fabrication Department:
Direct Material Cost	1300
Direct Labor Cost	990
Overhead Cost applied in Preparation Department	1593.85
Total Cost in Fabrication Department: (A)	3883.85
Total Cost recorded for Job 127: (A) + (B)	7683.85