Question

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

	Stamping Department	Assembly Department
Direct labour-hours	40,000	125,000
Machine-hours	300,000	15,000
Manufacturing overhead cost	$2,550,000	$4,000,000
Direct labour cost	$360,000	$3,200,000

 

Required

Compute the predetermined overhead rate to be used in each department.

Answer 1

Stamping Department:

Predetermined Overhead rate= Estimated total manufacturing overhead cost

                                                   Estimated total amount of the allocation base

Predetermined Overhead rate=  $2,550,000 

                                                   $300,000 machine-hours 

Predetermined Overhead rate= $8.50 per machine-hours

 

Assembly Department:

Predetermined Overhead rate= Estimated total manufacturing overhead cost

                                                   Estimated total amount of the allocation base

Predetermined Overhead rate= $4,000,000 

                                                  $3,200,000 direct labour cost

Predetermined Overhead rate= 125% Direct labour cost

Stamping Department: $8.50 per machine-hours

 

Assembly Department: 125% Direct labour cost