Hickingbottom Corporation has two production departments, Forming and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Forming 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 M381. The following data were recorded for this job:

-The predetermined overhead rate for the Forming Department is closest to:
A) $5.70 per machine-hour
B) $7.70 per machine-hour
C) $2.00 per machine-hour
D) $18.70 per machine-hour

Question

Hickingbottom Corporation has two production departments, Forming and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Forming 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 M381. The following data were recorded for this job:
 
-The predetermined overhead rate for the Forming Department is closest to:
A) $5.70 per machine-hour 
B) $7.70 per machine-hour 
C) $2.00 per machine-hour 
D) $18.70 per machine-hour

Quizplus · Accepted Answer

Forming Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $96,900 + ($2.00 per machine-hour × 17,000 machine-hours)
= $96,900 +$34,000 = $130,900
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $130,900 ÷ 17,000 machine-hours = $7.70 per machine-hour

Hickingbottom Corporation Has Two Production Departments, Forming and Finishing