Exercise 2-13 (Algo) Departmental Predetermined Overhead Rates [LO2-1, LO2-2, LO2-4] 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 8,200 68,000 Machine-hours 69,900 1,800 Total fixed manufacturing overhead cost $ 390,000 $ 406,000 Variable manufacturing overhead per machine-hour $ 4.00 — Variable manufacturing overhead per direct labor-hour — $ 2.75 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 3 11 Machine-hours 82 4 Direct materials $ 780 $ 350 Direct labor cost $ 66 $ 242 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?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 30P: Primera Company produces two products and uses a predetermined overhead rate to apply overhead....

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Exercise 2-13 (Algo) Departmental Predetermined Overhead Rates [LO2-1, LO2-2, LO2-4]

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	8,200	68,000
Machine-hours	69,900	1,800
Total fixed manufacturing overhead cost	$ 390,000	$ 406,000
Variable manufacturing overhead per machine-hour	$ 4.00	—
Variable manufacturing overhead per direct labor-hour	—	$ 2.75

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	3	11
Machine-hours	82	4
Direct materials	$ 780	$ 350
Direct labor cost	$ 66	$ 242

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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