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Compute predetermined overhead rate for each department; apply it

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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 cost. At the beginning of the year, the company made the following estimates:
Department
Cutting Finishing
Direct labor-hours 6,000 30,000
Machine hours 48,000 5,000
Manufacturing overhead cost $360,000 $486,000
Direct labor cost $50,000 $270,000

1. Compute the predetermined overhead rate to be used in each department.
2. Assume that the overhead rates that you computed in (1) above are in effect. 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 20
Machine hours 80 4
Manufacturing overhead cost $500 $310
Direct labor cost $70 $150,000

Compute the total overhead cost applied to job 203

3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plant-wide overhead rate based on direct labor cost, rather than using departmental rates? Explain.

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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 cost. At the beginning of the year, the company made the following estimates:
Department
Cutting Finishing
Direct ...

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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