Question

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

	Department
	Cutting		Finishing
Direct labor-hours		6,500		60,000
Machine-hours		54,300		2,400
Total fixed manufacturing overhead cost	$	400,000	$	520,000
Variable manufacturing overhead per machine-hour	$	3.00		—
Variable manufacturing overhead per direct labor-hour		—	$	4.75

Required:

1. Compute the predetermined overhead rate for each department.

2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

	Department
	Cutting				Finishing
Direct labor-hours			6				15
Machine-hours			84				5
Direct materials		$	730			$	370
Direct labor cost		$	114			$	285

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.

3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Answer 1

1. Compute the predetermined overhead rate for each department.

Cutting Department
Total fixed manufacturing overhead cost	400000
predetermined overhead rate =400000/54300 + 3	10.37	Per MH

Finishing Depatment Based of Direct Labor Hour
Total fixed manufacturing overhead cost	520000
predetermined overhead rate =52000/60000 + 4.75	3.87	Per DLH

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.

Answer is 2427.78

Cutting Department	Hr	Rate per Hr	Overhead Cost Assigned
Machine-hours	84	10.37	870.78
Finishing
Direct labor-hours	15	3.87	58
Total			928.78

	Cutting	Finishing	Total
Direct materials	730	370	1100
Direct labor cost	114	285	399
Overhead Cost Assigned	870.78	58	928.78
Total manufacturing cost assigned to Job 203	1714.78	713.00	2427.78

Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Yes;

sometimes jobs may require a large machine time and little labor Hour , they would be charged substantially less overhead cost if a plant-wide rate based on direct labor Hour were used.