Question

In: Accounting

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and...

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 8,300 76,000
Machine-hours 64,700 1,100
Total fixed manufacturing overhead cost $ 360,000 $ 533,000
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 13
Machine-hours 86 3
Direct materials $ 790 $ 370
Direct labor cost $ 114 $ 247

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?

Solutions

Expert Solution

SOLUTION

1. Cutting department-

Predetermined overhead rate = (Total fixed manufacturing overhead cost / Machine-hours) + Variable manufacturing overhead per machine-hour

= (360,000 / 64,700) + $3

= 5.56 + 3 = $8.56 per MH

Finishing department-

Predetermined overhead rate = (Total fixed manufacturing overhead cost / Direct labor-hours) + Variable manufacturing overhead per direct labor-hour

= (533,000 / 76,000) / $4.75

= 7.01 + 4.75 = $11.76 per DLH

2. Manufacturing cost-

Cutting Finishing
Direct material 790 370
Direct labor 114 247
Manufacturing overhead (8.56*86) , (11.76*13) 736.16 152.88
Manufacturing cots 1,640.16 769.88

Total manufacturing costs = 1,640.16 + 769.88 = $2,410.04

3. The given statement “different amounts of overhead cost to be charged to some jobs if the company used a plant wide overhead rate based on direct labor hours instead of using departmental rates” is correct. Therefore, the correct option is "Yes".


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