Question

High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job-order costing system in which 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’s management made the following estimates: Departm entMoldingPainting Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12,00060,000Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70,0008,000Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$510,000$650,000Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$130,000$420,000Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . .$497,000$615,000Variable manufacturing overhead per machine-hour . . . .$1.50–Variable manufacturing overhead per direct labor-hour . .–$2.00 Job 205 was started on August 1 and completed on August 10. The company’s cost records show the following information concerning the job: DepartmentMoldingPainting Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . 3084Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . 11020Materials placed into production . . . . . . . . . . . $470$332Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . $325$588 Compute the predetermined overhead rate used during the year in the Molding Department. Compute the rate used in the Painting Department. 2. Compute the total overhead cost applied to Job 205. 3. What would be the total cost recorded for Job 205? If the job contained 50 units, what would be the unit product cost? 4. At the end of the year, the records of High Desert Potteryworks revealed the following actual cost and operating data for all jobs worked on during the year:

1.Calculate the default rate of indirect costs during the year for the modeling department

2.Calculate the indirect costs allocated (applied) for work 205 in the modeling department.

3. Calculate the default rate of indirect costs during the year for the paint department

4.Calculate the indirect costs allocated (applied) for work 205 in the paint department.

Answer 1

Molding Department: The estimated total manufacturing overhead cost in the Molding Department is computed as follows: Y = 497,000 + 1.50 per Machine Hour × 70,000 Machine Hours
Estimated fixed manufacturing overhead	497,000
Estimated variable manufacturing overhead:	105,000
Estimated total manufacturing overhead cost	602,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead	602,000
÷ Estimated total machine-hours	70,000
= Predetermined overhead rate	8.6
Painting Department: The estimated total manufacturing overhead cost in the Painting Department is computed as follows: Y = 615,000 + 2.00 per Direct Labor Hours × 60,000 Direct Labor Hours
Estimated fixed manufacturing overhead	615,000
Estimated variable manufacturing overhead:      $2.00 per DLH × 60,000 DLHs	120,000
Estimated total manufacturing overhead cost	735,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead	735,000
÷ Estimated total DLHs	60,000
= Predetermined overhead rate	12.25
2
Molding Department overhead applied:      110 machine-hours × $8.60 per machine-hour	946
Painting Department overhead applied:      84 direct labor-hours × $12.25 per DLH	1029
Total overhead cost	1975
3 (b)
Unit product cost for Job 205:	3690
Total manufacturing cost	50
÷ Number of units in the job	73.8

4	Molding	Painting
Manufacturing overhead cost incurred
Manufacturing overhead cost applied:	570,000	750,000
65,000 machine-hours × $8.60 per MH	559,000
62,000 direct labor-hours × $12.25 per direct labor-hour		759,500
Underapplied (or overapplied) overhead	11,000	-9,500

3 (a)	Department
	Molding	Painting	Total
Direct Materials	470	332	802
Direct Labor	325	588	913
Manufacturing overhead	946	1029	1975
Total Cost	1741	1949	3690