Question

Compute the total manufacturing cost assigned to Job 407. (Round your intermediate and final answers to 2 decimal places.)

         

Diewold Company has two departments, Milling and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Milling Department bases its rate on machine-hours, and the Assembly Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates:

   

	Department
	Milling		Assembly
Direct labor-hours		8,400		89,000
Machine-hours		51,100		3,500
Total fixed manufacturing overhead cost	$	370,000	$	486,000
Variable manufacturing overhead per machine-hour	$	3.00		-
Variable manufacturing overhead per direct labor-hour		-	$	2.75

Required:

1. Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.)

     

2. Assume that the overhead rates you computed in (1) above are in effect. The job cost sheet for Job 407, which was started and completed during the year, showed the following:

	Department
	Milling			Assembly
Direct labor-hours		3			11
Machine-hours		89			5
Materials requisitioned	$	700		$	350
Direct labor cost	$	42		$	160

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

    

Answer 1

SOLUTION

1. Milling Department-

Total manufacturing overhead = Fixed manufacturing overhead + Variable manufacturing overhead

= $370,000 + ($3 * 51,100 machine hours)

= $370,000 + $153,300 = $523,300

Predetermined overhead rate = Total manufacturing overhead / Machine hours

= $523,300 / 51,100 = $10.24 per machine hour

Assembly Department-

Total manufacturing overhead = Fixed manufacturing overhead + Variable manufacturing overhead

= $486,000 + ($2.75 * 89,000 direct labour hours)

= $486,000 + $244,750 = $730,750

Predetermined overhead rate = Total manufacturing overhead / Direct labour hours

= $730,750 / 89,000 = $8.21 per direct labour hour

2.

Particulars	Amount ($)
Direct materials (700+350)	1,050
Direct labor (42+160)	202
Manufactuing overhead-
Milling department ($10.24 * 89MH)	911.36
Assembly department ($8.21 * 11 DLH)	90.31
Total manufacturing cost	2,253.67

3. A plant wide rate based on direct labor will yield different amounts for different jobs. This is particularly true if the job requires a large amount of machine hours and little labor time.