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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 30,000
Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 5,000
Total fixed manufacturing overhead cost . . . . . . . . . . . . . . . . $264,000 $366,000
Variable manufacturing overhead per machine-hour . . . . . . .... $2.00 —
Variable manufacturing overhead per direct labor-hour . . . . . — $4.00
1. Compute the predetermined overhead rate to be used in each department.
2. Assume that the overhead rates that you computed in (1) above are in effect. 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 20
Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 4
Materials requisitioned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500 $310
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70 $150

Required:
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 overhead rate based on direct labor-hours, rather than using departmental rates? Explain. No computations are necessary.

Answer 1

Question not complete

Direct Labour Cost is missing

Direct Labor Cost ----- $50,000.00 $270,000.00

Answer:

a.

Overhead Rate (Cutting Department) = $5.5 per machine hour = $5.5 per machine hour

Overhead Rate (Finishing Department) = $12.2 per labour hour

b. Total Manufacturing Cost = $644

c. Yes

Explanation:

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

Given

Cutting Department

The Cutting Department bases its rate on machine-hours

Manufacturing Overhead Costs = $264,000

Machine Hours = 48,000

Finishing Department

The Finishing Department bases its rate on direct labor-hours.

Manufacturing Overhead Costs = $366,000

Direct Labour Cost = $270,000

Overhead Rate (Cutting Department) = Manufacturing Overhead Cost/Machine Hours

Overhead Rate (Cutting Department) = $264,000/48,000

Overhead Rate (Cutting Department) = $5.5 per machine hour

Overhead Rate (Finishing Department) = Manufacturing Overhead Cost/Machine Hours

Overhead Rate (Finishing Department) = $366,000/$270,000

Overhead Rate (Finishing Department) = 1.36

Overhead Rate (Finishing Department) = 136% direct labour cost

b.

The Cutting Department bases its rate on machine-hours

Given

Machine hours = 80 machine hours

Overhead Rate = $5.5 per machine hours ------ Calculated

The Finishing Department bases its rate on direct labor-hours.

Given

Direct Labour Cost = 150

Overhead Rate = 136% labour cost ------ Calculated

Overhead Applied (Cutting Department) = 80 * 5.5

Overhead Applied = 440

Overhead Applied (Finishing Department) = 136% * 150

Overhead Applied = $204

Total Overhead Applied = $440 + $204

Total = $644

c. Yes

If they use a plantwide rate based on direct labor cost and if the jobs has longer machine hours and small amount of labor cost they will be charged less overhead cost.