Systems Design: Job-Order Costing

Dahra Sushmita Uy Limbo

3-20 [LO2.Departmental Overhead Rates Ex. . The company uses a job-order costing system and computes a predetermined overhead rates in each department. Cutting and Finishing. The Cutting Department bases its rate on machine-hours. LO5]   White Company has two departments. LO3. and the Finishing Department bases its rate on direct labor cost.

the company made the following estimates: Department Cutting Finishing Direct labor-hours Machine-hours Manufacturing overhead cost Direct labor cost 6.000 $360.000 30.000 $486.000 .000 5.000 48.  At the beginning of the year.000 $270.000 $50.

000 direct € = = estimated total manufacturing overhead cost estimated total amount of allocation base 1.8 or 180% of direct labor cost € € .50 per machine hours = 48.Predetermined overhead rate to be used in each department   Cutting Department: Predetermined overhead rate: = =   Finishing € estimated total manufacturing overhead cost estimated total amount of allocation base $ 7.000 machine hours $360.000 labor cost $270.000 Department: Predetermined overhead rate: € € = 486.

. which was started and completed during the year.  Assume that the overhead rates that you computed in (1) above are in effect. The job cost sheet for Job 203. showed the following: Department Cutting Finishing Direct labor-hours Machine-hours Manufacturing overhead cost Direct labor cost 6 80 $500 $70 20 4 $310 $150 Compute the total overhead cost applied to Job 203.

Total Overhead Cost Applied to Job 203   Cutting Department (80 machine hours) ×($7.50/machine hours) = = $600 Finishing Department ($150 direct labor cost) × (180%) $270 Total overhead cost applied ($600 + $270) € = € € $870 .

  Yes.Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labor cost. if they use a plantwide rate based on direct labor cost and if the jobs has longer machine hours and small amount of labor cost they will be charged less overhead cost. rather than using departmental rates? Explain. . No computations are necessary.

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