White Company has two departments Cutting and Finishing The

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 artment Direct labor-hours Machine-hours Total fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Cutting Finishing 75,000 2,700 $ 400,000 $ 549,000 7,700 59,400 $ 3.00 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 Machine-hours Direct materials Direct labor cost 83 780 120 17 4 $390 $ 408 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide 203 predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Solution

1 Predetermined overhead rate: Cutting department 9.73 =3+(400000/59400) Finishing department 11.07 =3.75+(549000/75000) 2 Direct materials 1170 =780+390 Dorect labor 528 =120+408 Overhead 996 =(83*9.73)+(17*11.07) Total mnaufacturing cost 2694 3 Yes