Question

Lupo Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:

Total machine-hours		32,800
Total fixed manufacturing overhead cost	$	164,000
Variable manufacturing overhead per machine-hour	$	5

Recently, Job T687 was completed with the following characteristics:

Number of units in the job		10
Total machine-hours		30
Direct materials	$	745
Direct labor cost	$	1,490

The amount of overhead applied to Job T687 is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $164.00

• $300.00

• $60.00

• $401.40

Answer 1

Under the job order costing system, each process is treated and accounted for separately, as the system is used only when the produced goods are different from each other. Manufacturing overhead is allocated using a predetermined overhead rate and it comprises of both the variable component and the fixed component.

The amount of overhead applied to Job T687 is closest to $300.

Explanation:

It is given that,
The estimated total fixed manufacturing overhead cost is $164,000
Variable overhead per unit is $5 per machine hour and total machine hour given is 32,800 hours. Hence,

Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base)
= $164,000 + ($5 per machine-hour × 32,800 machine-hours)
= $164,000 + $164,000
= $328,000

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
= $328,000 ÷ 32,800 machine-hours = $10 per machine-hour

It is given that, the the total machine hours for completing Job T687 is 30 hours. Hence,

Overhead applied to that particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $10 per machine-hour × 30 machine-hours = $300

The amount of overhead applied to Job T687 is $300.