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 Finishing Department is closest to:
A) $9.40 per direct labor-hour
B) $13.00 per direct labor-hour
C) $3.60 per direct labor-hour
D) $5.35 per direct labor-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 Finishing Department is closest to:
A) $9.40 per direct labor-hour 
B) $13.00 per direct labor-hour 
C) $3.60 per direct labor-hour 
D) $5.35 per direct labor-hour

Quizplus · Accepted Answer

Finishing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $65,800 + ($3.60 per direct labor-hour × 7,000 direct labor-hours)
= $65,800 + $25,200 = $91,000
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $91,000 ÷7,000 direct labor-hours = $13.00 per direct labor-hour

Hickingbottom Corporation Has Two Production Departments, Forming and Finishing