Question

WoodGrain Technology makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Preparation Department is based on machine hours, and the rate in the Fabrication Department is based on direct labor-hours. At the beginning of the year, the company’s management made the following estimates for the year:

      

	Department
	Preparation				Fabrication
Machine-hours		84,000				36,000
Direct labor-hours		30,500				58,200
Direct materials cost	$	190,000			$	200,000
Direct labor cost	$	273,000			$	519,000
Fixed manufacturing overhead cost	$	184,800			$	517,980
Variable manufacturing overhead per machine-hour	$	3.20				-
Variable manufacturing overhead per direct labor-hour		-			$	5.20

Job 127 was started on April 1 and completed on May 12. The company's cost records show the following information concerning the job:

	Department
	Preparation					Fabrication
Machine-hours		360				74
Direct labor-hours		80				126
Direct materials cost	$	946			$	1,160
Direct labor cost	$	690			$	990

Requred:    

1. Compute the predetermined overhead rate used during the year in the Preparation Department. Compute the rate used in the Fabrication Department. (Round predetermined overhead rate to 2 decimal places.)

Answer 1

1. Compute the predetermined overhead rate used during the year in the Preparation Department. Compute the rate used in the Fabrication Department.

a) Preparation department overhead rate = (184800/84000)+3.20 = 5.40 per machine hour

b) Fabrication department overhead rate = (517980/58200)+5.20 = 14.10 per labour hour