White Company has two departments, Cutting and Finishing. The company uses a job
ID: 2332460 • Letter: W
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 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 — $ 4.00Explanation / Answer
1) Predetermined overhead rate Cutting department Fixed manufacturing overhead (264,000/48,000)= 5.5 Variable manufacturing overhead per machiner hour 2 Predetermined overhead rate 7.5 per machine hr finishing department Fixed manufacturing overhead (366000/30,000)= 12.2 Variable manufacturing overhead per machiner hour 4 Predetermined overhead rate 16.2 per direct labor hr 2) Total manufacturing cost Cutting Finishing total Direct materials 500 310 810 direct labor 108 360 468 overhead assigned cutting (7.5*80) 600 600 finishing (16.2*20) 324 324 total 1208 994 2202 3) Yes, as we can see that cutting department uses less labor and hence the overhead assigned will be quite less
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