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 total amount of overhead applied in both departments to Job K928 is closest to:
A) $1,405
B) $2,000
C) $810
D) $595

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 total amount of overhead applied in both departments to Job K928 is closest to:
A) $1,405 
B) $2,000 
C) $810 
D) $595

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
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $9.00 per machine-hour × 90 machine-hours = $810
Finishing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $69,600 + ($3.20 per direct labor-hour × 8,000 direct labor-hours)
= $69,600 + $25,600 = $95,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $95,200 ÷8,000 direct labor-hours = $11.90 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $11.90 per direct labor-hour × 50 direct labor-hours = $595
Overhead applied to Job K928
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Kalp Corporation Has Two Production Departments, Machining and Finishing