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		7,600		83,000
Machine-hours		67,000		3,200
Total fixed manufacturing overhead cost	$	380,000	$	408,000
Variable manufacturing overhead per machine-hour	$	4.00		—
Variable manufacturing overhead per direct labor-hour		—	$	4.75

Required:

1. Compute the predetermined overhead rate for each department.

2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

	Department
	Cutting				Finishing
Direct labor-hours			3				20
Machine-hours			80				6
Direct materials		$	760			$	350
Direct labor cost		$	57			$	380

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.

3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Please answer 1. 2. and 3

Answer 1

1)
Cutting Deparment
Predetermined overhead rate        = (Total Fixed manufacturing Overhead Cost / Machine Hours)                             +   Variable manufacturing overhead per Machine Hour       =   ( $ 380,000 / 67,000 MH ) + $ 4       =    $ 5.67 + $ 4       =     $ 9.67	$ 9.67
Finishing Deparment
Predetermined overhead rate        = (Total Fixed manufacturing Overhead Cost / Direct labor-hours)                             +   Variable manufacturing overhead per direct labor-hour       =   ( $ 408,000 / 83,000 DLH ) + $ 4.75       =    $ 4.92 + $ 4.75       =     $ 9.67	$ 9.67
2)
Direct material ( $ 760 + $ 350)	$ 1,110
Direct labor ($ 57 + $ 380)	$ 437
Cutting department overhead ( 80 MH x $ 9.67 )	$ 773.60
Finishing department overhead ( 20 DLH x $ 9.67 )	$ 193.40
Total Manufacturing cost	$ 2,514
3)
Yes, if Predetermined Plantwide overhead rate would be used of overhead allocation would be changed