Question

Baker enterprises, Inc., has a job-order costing system. The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labor hours. At the beginning of the most recent year, the company’s management made the following estimates for the year:

		Department A	Department B
	Machine-hours.............	70,000	19,000
	Direct labor-hours.........	30,000	60,000
	Direct materials............	$195,000	$282,000
	Direct labor..................	$260,000	$520,000
	Manufacturing overhead.................................	$420,000	$705,000

Job 423 entered into production an April 1 and was completed on May 12. The company’s cost records show the following information about the job:

		Department A	Department B
	Machine-hours.....	250	60
	Direct labor-hours.	70	120
	Direct materials....	$840	$1,100
	Direct labor..........	$610	$880

Required:

a. Compute the predetermined overhead rates for Department A and Department B.

b. Compute the total overhead cost applied to Job 423.

c. Compute the total job cost of Job 423

d. Compute the unit cost of Job 423 if the job produces 300 units.

Answer 1

Answer a.

Department A:

Predetermined Overhead Rate = Budgeted Manufacturing Overhead / Budgeted machine-hours
Predetermined Overhead Rate = $420,000 / 70,000
Predetermined Overhead Rate = $6.00 per machine-hour

Department B:

Predetermined Overhead Rate = Budgeted Manufacturing Overhead / Budgeted direct labor-hours
Predetermined Overhead Rate = $705,000 / 60,000
Predetermined Overhead Rate = $11.75 per direct labor-hour

Answer b.

Department A:

Overhead Cost applied = Predetermined Overhead Rate * Actual machine-hours
Overhead Cost applied = $6.00 * 250
Overhead Cost applied = $1,500

Department B:

Overhead Cost applied = Predetermined Overhead Rate * Actual direct labor-hours
Overhead Cost applied = $11.75 * 120
Overhead Cost applied = $1,410

Job 423:

Total Overhead Cost applied = $1,500 + $1,410
Total Overhead Cost applied = $2,910

Answer c.

Department A:

Total Cost = Direct Materials + Direct Labor + Overhead Cost applied
Total Cost = $840 + $610 + $1,500
Total Cost = $2,950

Department b:

Total Cost = Direct Materials + Direct Labor + Overhead Cost applied
Total Cost = $1,100 + $880 + $1,410
Total Cost = $3,390

Job 423:

Total Job Cost = $2,950 + $3,390
Total Job Cost = $6,340

Answer d.

Unit Cost = Total Job Cost / Number of units produced
Unit Cost = $6,340 / 300
Unit Cost = $21.13