Question

Garza Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department’s predetermined overhead rate is based on machine-hours and the Customizing Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:
Casting Customizing
Machine-hours 12,000 19,000
Direct labor-hours 10,000 7,000
Total fixed manufacturing overhead cost $ 42,000 $ 38,500
Variable manufacturing overhead per machine-hour $ 1.50
Variable manufacturing overhead per direct labor-hour $ 5.00
The estimated total manufacturing overhead for the Customizing Department is closest to:
Multiple Choice
A. $38,500
B. $35,000
C. $92,000
D. $73,500

Answer 1

Answer:

D. $73,500

Explanation:

The computation of the total manufacturing overhead cost is shown below:

= Variable manufacturing overhead + Fixed manufacturing overhead

where,

Variable manufacturing overhead  = Direct labor hours × Variable manufacturing overhead per direct labor-hour

= 7,000 × $5

= $35,000

And, the  Fixed manufacturing overhead is $38,500

Now put these values to the above formula

So, the answer would be equal to

= $35,000 + $38,500

= $73,500

The rest information which is given in the question is irrelevant. Hence, it is ignored.