Shakespeare 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: Cutting Finishing Direct labor-hours 8,100 75,000 Machine-hours 64,500 1,200 Total fixed manufacturing overhead cost $370,000 $405,000 Variable manufacturing overhead per machine-hour $3.00 - Variable manufacturing overhead per direct labor-hour - $3.75 Compute the predetermined overhead rate to be used in each department.

Question

Business

Evelin Hartman

5 October, 15:25

Shakespeare 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: Cutting Finishing Direct labor-hours 8,100 75,000 Machine-hours 64,500 1,200 Total fixed manufacturing overhead cost $370,000 $405,000 Variable manufacturing overhead per machine-hour $3.00 - Variable manufacturing overhead per direct labor-hour - $3.75 Compute the predetermined overhead rate to be used in each department.

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Answers (1)

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Lizbeth Jackson · Answer 1

The predetermined overhead rate to be used in cutting and the finishing department is $8.73 per hour and $9.15 per hour respectively

Explanation:

The computation of predetermined overhead rate is shown below:

For Cutting department:

Predetermined overhead rate = (Estimated fixed manufacturing Overhead cost : estimated machine hours) + Variable manufacturing overhead per machine-hour

= ($370,000 : 64,500 hours) + $3.00

= $8.73 per hour

For Finishing Department:

Predetermined overhead rate = (Estimated l fixed manufacturing Overhead cost : estimated direct labor hours) + Variable manufacturing overhead per direct labor-hour

= ($405,000 : 75,000 hours) + $3.75

= $9.15 per hour