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 CuttingFinishingDirect labor-hours 7,600 65,000Machine-hours 52,000 3,100Total fixed manufacturing overhead cost$400,000$561,000Variable manufacturing overhead per machine-hour$3.00 —Variable manufacturing overhead per direct labor-hour —$3.75  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:  Department CuttingFinishingDirect labor-hours  5   15 Machine-hours  89   5 Direct materials $770  $380 Direct labor cost $115  $345   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?

Question
Asked Sep 17, 2019
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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   7,600   65,000
Machine-hours   52,000   3,100
Total fixed manufacturing overhead cost $ 400,000 $ 561,000
Variable manufacturing overhead per machine-hour $ 3.00  
Variable manufacturing overhead per direct labor-hour   $ 3.75
 

 

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:

 

  Department
  Cutting Finishing
Direct labor-hours     5       15  
Machine-hours     89       5  
Direct materials   $ 770     $ 380  
Direct labor cost   $ 115     $ 345  
 

 

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?

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Expert Answer

Step 1

Computation of estimated cost of cutting department

Estimated cost of cutting department =/Machine hours xVariable manufacturing overhead
per machine hour
Total fixed manufacturing overhead
(52000x 3)+$400, 000
$556, 000
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Estimated cost of cutting department =/Machine hours xVariable manufacturing overhead per machine hour Total fixed manufacturing overhead (52000x 3)+$400, 000 $556, 000

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Step 2

Computation of estimated cost of finishing department:

Estimated cost of finishing department (Laborhours x Variable manufactuirng overhead per labor hour)
+Totalfixed mamufacturing overhead
($65,000x3.75) +$561, 000
=
= $804, 750
help_outline

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Estimated cost of finishing department (Laborhours x Variable manufactuirng overhead per labor hour) +Totalfixed mamufacturing overhead ($65,000x3.75) +$561, 000 = = $804, 750

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Step 3

Computation of predetermined overhead rate of cutting department:

Note: Predetermined ov...

Estimated manufacturing overhead
Predetermined overhead rate of cutting department
Machine hours
$556, 000
52,000
- $10.69 per machine hour
help_outline

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Estimated manufacturing overhead Predetermined overhead rate of cutting department Machine hours $556, 000 52,000 - $10.69 per machine hour

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