Sardinal Corporation, which uses a job-costing system, had one job in process at

Question

Sardinal Corporation, which uses a job-costing system, had one job in process at the start of 2013: job no. S2 with a cost of $98,000. The following information is available:

The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $828,000 and 36,000 hours, respectively.

The company worked on three jobs during the first quarter. Direct materials used, direct labor incurred, and machine hours consumed were:

Job No.         Direct Material             Direct Labor          Machine Hours

   S2                      $48,000                       $85,000                     1,000

   T3                        30,000                         55,000                     1,200

   T4                        62,000                         65,000                     1,400

Manufacturing overhead during the first quarter included charges for depreciation ($24,000), indirect labor ($19,000), indirect materials used ($14,000), and other factory costs ($25,400).

Sardinal completed job no. S2 and job no. T3. Job no. S2 was sold for cash, producing a gross profit of $24,600 for the firm.

Required:

Compute the company's predetermined overhead application rate.State it in terms of cost per machine hour.

Explanation / Answer

Answer: Predetermined overhead rate=Estimated overhead/Estimated machine hours

=828000/36000

=$23 per hour

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