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:

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.

Explanation / Answer

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 Req. 1 Cutting Finishing Total Manufacturing Overhead cost (a) 360000 486000 =264000+2*48000 =366000+4*30000 ÷ Overhead allocation base (b) ÷ 48000 ÷ 30000 Predetermned Overhead rate (a) ÷ (b) 7.5 16.2 Given Data Department Cutting Finishing Direct labor-hours 6 20 Machine-hours 80 4 Materials requisitioned $500 $310 Direct labor cost $70 $150 Department Req 2 Cutting Finishing Materials requisitioned $500 $310 Direct labor cost $70 $150 Manufacturing Overhead(80 x $7.5; 20 x $16.20) 600 324 Total Manufacturinng cost $1,170 $784 Req 3 Yes, if plantwide overhead rate would be used allocation of overhead would be changed since in present case only respective hours in particular department is used, and for plantwide rate per direct labor hour would be used that will be lower than present case.

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