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 8,400 84,000 Machine-hours 65,600 1,000 Total fixed manufacturing overhead cost $ 390,000 $ 482,000 Variable manufacturing overhead per machine-hour $ 3.00 — 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 6 18 Machine-hours 87 3 Direct materials $ 730 $ 360 Direct labor cost $ 132 $ 396 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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		8,400		84,000
Machine-hours		65,600		1,000
Total fixed manufacturing overhead cost	$	390,000	$	482,000
Variable manufacturing overhead per machine-hour	$	3.00		—
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			6		18
Machine-hours			87		3
Direct materials		$	730	$	360
Direct labor cost		$	132	$	396

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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