Question

Fatzinger Corporation has two production departments, Milling and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department's predetermined overhead rate is based on machine-hours and the Assembly 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:
Milling Assembly
Machine-hours 20,000 14,000
Direct labor-hours 2,000 7,000
Total fixed manufacturing overhead cost $137,000 $57,400
Variable manufacturing overhead per machine-hour $ 2.30
Variable manufacturing overhead per direct labor-hour $3.40
The predetermined overhead rate for the Assembly Department is closest to:__________.

Answer 1

Answer: $11.60

Explanation:

Predetermined overhead rate = Fixed overhead rate + Variable manufacturing overhead per direct labor-hour

Assembly Department's predetermined overhead rate is based on direct labor-hours.

Fixed overhead rate = Total fixed manufacturing overhead cost for Assembly /  Direct labor hours for Assembly

= 57,400 / 7,000

= $8.20 per labor hour

Predetermined overhead rate for Assembly = 8.20 + 3.40

= $11.60