Question

Job costing, accounting for manufacturing overhead, budgeted rates. The Pisano Company uses a job-costing system at its Dover, Delaware, plant. The plant has a machining department and a finishing department. Pisano uses normal costing with two direct-cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the machining department with machine- hours as the allocation base and the finishing department with direct manufacturing labor costs as the allocation base). The 2014 budget for the plant is as follows:
Machining Department Finishing Department
Manufacturing overhead costs $9,065,000 $8,181,000
Direct manufacturing labor costs $970,000 $4,050,000
Direct manufacturing labor-hours 36,000 155,000
Machine-hours 185,000 37,000

Required:
What is the budgeted manufacturing overhead rate in the machining department? In the finishing department?

Answer 1

Answer:

Budgeted manufacturing overhead rate in the machining department is $49.00 per machine hour.  In the finishing department is $52.78 per direct labor hour.

Explanation:

Budgeted manufacturing overhead rate = Budgeted Overheads ÷ Budgeted Activity

Note that ;

1. Machining department has machine- hours as the allocation base.

2.Finishing department has direct manufacturing labor costs as the allocation base

Therefore,

Budgeted manufacturing overhead rate (Machining department) = $9,065,000 ÷ 185,000 = $49.00 per machine hour

Budgeted manufacturing overhead rate (Finishing department) = $8,181,000 ÷ 155,000 = $52.78 per direct labor hour

Conclusion

Budgeted manufacturing overhead rate in the machining department is $49.00 per machine hour.  In the finishing department is $52.78 per direct labor hour.