Question

High Desert Potteryworks makes a variety of pottery products that it sells to retailers. The company uses a job-order costing system in which departmental predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company provided the following estimates: Department Molding Painting Direct labor-hours 39,000 53,800 Machine-hours 89,000 38,000 Fixed manufacturing overhead cost $ 222,500 $ 473,440 Variable manufacturing overhead per machine-hour $ 2.80 - Variable manufacturing overhead per direct labor-hour - $ 4.80 Job 205 was started on August 1 and completed on August 10. The company's cost records show the following information concerning the job: Department Molding Painting Direct labor-hours 83 131 Machine-hours 300 74 Direct materials $ 942 $ 1,200 Direct labor cost $ 740 $ 1,010 Required: 1. Compute the predetermined overhead rates used in the Molding Department and the Painting Department. 2. Compute the total overhead cost applied to Job 205. 3-a. What would be the total manufacturing cost recorded for Job 205? 3-b. If the job contained 34 units, what would be the unit product cost?

Answer 1

Solution:

1) Calculation of Predetermined Overhead Rates

Predetermined Overhead Rate

- Predetermined Overhead Rate is the rate which is used to apply manufacturing overhead to products or job orders.

- Normally, it is calculated at the beginning of the period.

- It is calculated by dividing the estimated factory overhead cost by an allocation base (or suitable basis).

- Allocation bases may be direct labor hours, direct labor costs, machine hours etc..

Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Allocation Base

Plant-wide overhead rate means predetermined overhead rate of plant as a whole.

		Molding Department	Painting Department
A	Fixed Manufacturing Overhead	$222,500	$473,440
B	Direct Labor Hours (allocation base)		53800 DLHs
B	Machine Hours (Allocation Base)	89000 MHs
C = A/B	Allocation Rate for Fixed Manufacturing Overhead (A)	$2.50 Per MH	$8.80 per DLH
D	Variable Manufacturing Overhead	$2.80 per MH	$4.80 per DLH
C+D	Predetermined Overhead Rate	$5.30 per MH	$13.60 per DLH

2) Total Overhead Cost applied to Job 205

We need to find out the Actual total machine hours and Actual direct labor hours used in completing Job 205 so that we will calculate the overhead cost by using the predetermined overhead rate calculated in part 2.

		Molding Department	Painting Department	TOTAL
A	Actual Direct Labor Hours Used		131 DLHs
A	Actual Machine Hours Used	300 MHs
B	Predetermined Overhead Rate	$5.30 per MH	$13.60 per DLH
AxB	Total Overhead Cost Applied	$1,590.00	$1,781.60	$3,371.60

Total Overhead Cost Applied to JOB 205 = $3,371.60

3-a) Total Manufacturing Cost for Job 205

	Molding Department	Painting Department	Total
Direct materials	$942.00	$1,200.00	$2,142.00
Direct labor cost	$740.00	$1,010.00	$1,750.00
Total Manufacturing overhead applied (from part 2)	$1,590.00	$1,781.60	$3,371.60
Total Manufacturing Cost	$3,272.00	$3,991.60	$7,263.60

Total Manufacturing Cost for Job 205 = $7,263.60

3-b) Unit Product Cost If the job contained 34 units.

Total Manufacturing Cost	$7,263.60
Total Units	34 Units
Unit Product Cost (Total Manufacturing Cost $7,263.60 / Total Units 34 Units)	$213.64 Per Unit

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