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 6,100 72,000
Machine-hours 59,000 3,200
Total fixed manufacturing overhead cost $390,000 $443,000
Variable manufacturing overhead per machine-hour $3.00 -
Variable manufacturing overhead per direct labor-hour - $4.75

a. Compute the predetermined overhead rate to be used in each department.
b. Assume that the overhead rates you computed in (1) above are in effect. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

Department
Cutting Finishing
Direct labor-hours 4 19
Machine-hours 80 4
Materials requisitioned $770 $360
Direct labor cost $36 $180
Compute the total manufacturing cost assigned to Jobe 203.

c. Would you expect substantially different amounts of overhead cost to be charged to some jobs if the company use a plantwide overhead rate based on direct labor-hours instead of using departmental rates?

Answer 1

Answer:

White Company

a. Predetermined overhead rates:

Departments                                                     Cutting          Finishing

Total fixed manufacturing overhead cost $390,000        $443,000

Usage                                                                  6,100              3,200

Fixed overhead cost per unit                            $6.61               $6.15

Variable overhead cost per unit                       $3.00              $4.75

Predetermined overhead rates                        $9.61             $10.90

b. Job 203:

Department

                                        Cutting      Finishing

Direct labor-hours                4                  19

Machine-hours                   80                   4

Materials requisitioned $770             $360

Direct labor cost              $36             $180

Total manufacturing cost assigned to Job 203:

                                              Cutting      Finishing

Materials requisitioned           $770             $360

Direct labor cost                       $36              $180

Manufacturing overhead       $769             $207

Total manufacturing costs  $1,575              $747

c. Yes.  The amounts of overhead cost assigned to some jobs would be substantially different.

Explanation:

a) Data and Calculations:

Departments                                                     Cutting          Finishing

Direct labor-hours                                              6,100             72,000

Machine-hours                                                59,000               3,200

Total fixed manufacturing overhead cost $390,000        $443,000

Variable manufacturing overhead per m/h     $3.00                  -

Variable manufacturing overhead per dlh          -                   $4.75