Question

C.

Shattered Glass Company makes custom order ornate glass vases. The company uses a job-order cost system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Fabrication Department is based on machine hours, and the rate in the Finishing Department is based on direct labor hours. At the beginning of the year, the company’s management made the following estimates for the year:

Department

Fabrication Finishing

Machine hours 79,000 25,000

Direct labor hours 27,000 42,000

Direct material cost $400,000 $212,000

Direct labor cost $350,000 $700,000

Fixed manufacturing overhead cost $750,000 $300,000

Variable manufacturing overhead per machine hour $2.50 --

Variable manufacturing overhead per direct labor hour -- $2.75

Job 99 (the Mother’s Day special) was started on April 1 and completed on April 30. The company’s cost records show the following information concerning the job:

Department

Fabrication Finishing

Machine hours 325 100

Direct labor hours 125 150

Direct materials cost $1,400 $1,200

Direct labor cost $950 1,200

• Compute the predetermined overhead rate used during the year in the Fabrication Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the predetermined overhead rate used during the year in the Finishing Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the total overhead cost applied to Job 99 (in dollars and cents).

• What would be the total cost recorded for Job 99? (Round to two decimal places.)

• If Job 99 contained 75 units, what would be the unit product cost? (Round to two decimal places.)

• If it contained 800 units, what would be the unit product cost? (Round to two decimal places.)

• At the end of the year, the records of Shattered Glass revealed the following actual cost and

operating data for all jobs during the year:

Department

Fabrication Finishing

Machines hours 80,000 28,000

Direct labor hours 28,25 0 41,000

Direct materials cost $410,000 $213,000

Manufacturing overhead cost $751,000 $298,000

What was the amount of actual overhead in each department at the end of the year? Was it underapplied or overapplied? (You should have a total of four answers for this question.)

Answer 1

Facts of the question:

The predetermined overhead rate in the Fabrication Department is based on machine hours, and the rate in the Finishing Department is based on direct labor hour

Department	Machine hours	Direct labour hours
Fabrication	79,000	27,000
Finishing	25,000	42,000

Computation of the predetermined overhead rate used during the year in the Fabrication Department:

Manufacturing overhead	computation	Rate per machine hour in $
Fixed manufacturing overhead	750000/79000 machine hours	9.49
Variable manufacturing overhead	Rate per machine hour given	2.50
		11.99

Pre-determined manufacturing overhead rate per machine hours $11.99 during the year for Fabrication department.

Computation of the predetermined overhead rate used during the year in the Finishing Department:

Manufacturing overhead	Computation	Rate per direct labour hour in $
Fixed manufacturing overhead	300000/42000 labour hours	7.14
Variable manufacturing overhead	Rate per labour hour given	2.75
		9.89

Pre-determined manufacturing overhead rate per direct labour hour $9.89 during the year for finishing department.

Compute the total overhead cost applied to Job 99:

Manufacturing overhead	Fabrication Dep	Finishing dep.	Overhead cost in Job 99
Fixed overhead	325 hrs X $9.49 =$3084.25	150 hrs X $7.14= $1071.00	$4155.25
Variable overhead	325 hrs X $2.50 =$812.50	150 hrs X $2.75= $412.50	$1225.00
		Total overhead cost in Job 99	$5380.25

Calculation of total cost recorded in Job 99:

Particulars	Computation	Cost in $
Direct Material cost	Fabr. $1400+ Fini. $1200	$2600.00
Direct Labor cost	Fabr. $950+ Fini. $1200	$2150.00
Prime Cost (DMC + DLC)		$4750.00
Add: Manufacturing overhead	As per above calculation	$5380.25
Total Cost recorded for Job 99	$10130.25

If Job 99 contained 75 units, then unit product cost would be:

Unit cost for Job 99 = Total cost of production/ Number of units

Unit cost for Job 99 = $10130.25/75 units

Unit cost for Job 99 = $135.07 per unit

If Job 99 contained 800 units, then unit product cost would be:

Unit cost for Job 99 = Total cost of production/ Number of units

Unit cost for Job 99 = $10130.25/800 units

Unit cost for Job 99 = $12.66 per unit

Calculation of under absorption or over absorption of overhead in each department

Particulars	Fabrication amount in $	Finishing amount in $
Actual overhead	751000	298000
Budgeted overhead	750000	300000
(Under absorption)/ over absorption	1000	(2000)