Rapier Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated jointer. Additional information is provided below for the most recent month: Estimates at the beginning of the month: Estimated total fixed manufacturing overhead Capacity of the jointer Actual results: $3,740 200 hours Actual total fixed manufacturing overhead $3,740 Actual hours of jointer use 170 hours The predetermined overhead rate based on hours at capacity is closest to: Multiple Choice $58.24 per hour $49.50 per hour $22.00 per hour $18.70 per hour
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![**Understanding Predetermined Overhead Rates in Job-Order Costing**
**Overview:**
Rapier Woodworking Corporation specializes in producing fine cabinets and utilizes a job-order costing system. A key aspect of this system involves calculating a predetermined overhead rate, which is based on the factory's capacity. This capacity is influenced by a crucial constraint, the automated jointer. The following details pertain to the most recent month.
**Monthly Estimates:**
1. **Estimated total fixed manufacturing overhead:** $3,740
2. **Capacity of the jointer:** 200 hours
**Actual Results:**
1. **Actual total fixed manufacturing overhead:** $3,740
2. **Actual hours of jointer use:** 170 hours
**Objective:**
To determine the predetermined overhead rate based on hours at capacity.
**Calculation:**
The predetermined overhead rate can be derived using the formula:
\[ \text{Predetermined Overhead Rate} = \frac{\text{Estimated Total Fixed Manufacturing Overhead}}{\text{Capacity of the Jointer (in hours)}} \]
Given the data:
\[ \text{Estimated Total Fixed Manufacturing Overhead} = \$3,740 \]
\[ \text{Capacity of the Jointer} = 200 \text{ hours} \]
Substitute the values into the formula:
\[ \text{Predetermined Overhead Rate} = \frac{\$3,740}{200 \text{ hours}} \]
\[ \text{Predetermined Overhead Rate} = \$18.70 \text{ per hour} \]
**Question:**
Based on the calculations, the predetermined overhead rate, closest to, is:
**Multiple Choice:**
- $58.24 per hour
- $49.50 per hour
- $22.00 per hour
- $18.70 per hour (Correct Answer)
The correct answer reflects the closest predetermined overhead rate based on the given capacity of the jointer.
This exercise illustrates the importance of understanding and applying overhead rates in job-order costing systems for accurate financial planning and cost control in manufacturing environments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffb04437b-3f7e-4496-ba03-3a7f713d70b1%2Ff7053aee-ea61-4a1c-a084-b865f3837137%2Fkk0slmi_processed.png&w=3840&q=75)
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