White Company has two departments, Cutting and Finishing. The company uses a job

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:

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:

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?

Department Cutting Finishing Direct labor-hours 7,500 89,000 Machine-hours 51,700 3,900 Total fixed manufacturing overhead cost $ 360,000 $ 442,000 Variable manufacturing overhead per machine-hour $ 3.00 — Variable manufacturing overhead per direct labor-hour — $ 2.75

Explanation / Answer

1 Cutting Total Manufacturing overhead cost 360,000+(3*51700) 515100 515100/51700 POHR 9.96 Fishing Total Manufacturing overhead cost 442,000+(2.75*89000) 686750 POHR 686750/89000 7.72 2 Direct Materials Direct Labor Manufacturing Overhead Cutting 780 100 817 Fishing 360 320 123 Total 1140 420 940 Direct Materials 1140 Direct Labor 420 Manufacturing Overhead 940 2500 3 Yes

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