Comans Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department's predetermined overhead rate is based on machine-hours and the Customizing 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 A319. The following data were recorded for this job:

-The amount of overhead applied in the Customizing Department to Job A319 is closest to:
A) $234.00
B) $786.00
C) $552.00
D) $91,700.00

Question

Comans Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department's predetermined overhead rate is based on machine-hours and the Customizing 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 A319. The following data were recorded for this job:
 
-The amount of overhead applied in the Customizing Department to Job A319 is closest to:
A) $234.00 
B) $786.00 
C) $552.00 
D) $91,700.00

Quizplus · Accepted Answer

Customizing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $64,400 + ($3.90 per direct labor-hour × 7,000 direct labor-hours)
= $64,400 + $27,300 = $91,700
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $91,700 ÷7,000 direct labor-hours = $13.10 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $13.10 per direct labor-hour × 60 direct labor-hours = $786

Comans Corporation Has Two Production Departments, Milling and Customizing