Kalp Corporation has two production departments, Machining and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Department's predetermined overhead rate is based on machine-hours and the Finishing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates: During the current month the company started and finished Job K928. The following data were recorded for this job:
The predetermined overhead rate for the Machining Department is closest to:
A) $7.20 per machine-hour
B) $9.00 per machine-hour
C) $21.38 per machine-hour
D) $1.80 per machine-hour

Question

Kalp Corporation has two production departments, Machining and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Department's predetermined overhead rate is based on machine-hours and the Finishing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:  During the current month the company started and finished Job K928. The following data were recorded for this job:
 The predetermined overhead rate for the Machining Department is closest to:
A) $7.20 per machine-hour 
B) $9.00 per machine-hour 
C) $21.38 per machine-hour 
D) $1.80 per machine-hour

Quizplus · Accepted Answer

Machining Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $136,800 + ($1.80 per machine-hour × 19,000 machine-hours)
= $136,800 +$34,200 = $171,000
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $171,000 ÷ 19,000 machine-hours = $9.00 per machine-hour

Kalp Corporation Has Two Production Departments, Machining and Finishing