Question

Garza Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting 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: Casting CustomizingMachine-hours 12,000 19,000Direct labor-hours 10,000 7,000Total fixed manufacturing overhead cost $42,000 $38,500Variable manufacturing overhead per machine-hour $1.50 Variable manufacturing overhead per direct labor-hour $5.00The estimated total manufacturing overhead for the Customizing Department is closest to:Multiple Choicea. $38,500b. $35,000c. $92,000d. $73,500

Answer 1

Answer:

d. $73,500

Explanation:

The computation of the estimated total manufacturing overhead for the customizing department is shown below:

= Total fixed manufacturing overhead cost + Variable manufacturing overhead cost

where,

the variable manufacturing overhead cost = Customized Direct labor-hours × Variable manufacturing overhead per direct labor-hour

= 7,000 units × $5

= $35,000

And, the Total fixed manufacturing overhead cost is $38,500

Now put these values to the above formula

So, the answer would be equal to

= $38,500 + ($7,000 hours × $5 per hour)

= $38,500 + $35,000

= $73,500