Collini Corporation has two production departments, Machining and Customizing. 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 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 T268. The following data were recorded for this job:

-The total amount of overhead applied in both departments to Job T268 is closest to:
A) $616
B) $715
C) $2,046
D) $1,331

Question

Collini Corporation has two production departments, Machining and Customizing. 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 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 T268. The following data were recorded for this job:
 
-The total amount of overhead applied in both departments to Job T268 is closest to:
A) $616 
B) $715 
C) $2,046 
D) $1,331

Quizplus · Accepted Answer

Machining Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $102,000 + ($1.70 per machine-hour × 17,000 machine-hours)
= $102,000 +$28,900 = $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
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $7.70 per machine-hour × 80 machine-hours = $616
Customizing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $61,200 + ($4.10 per direct labor-hour × 6,000 direct labor-hours)
= $61,200 + $24,600 = $85,800
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $85,800 ÷6,000 direct labor-hours = $14.30 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $14.30 per direct labor-hour × 50 direct labor-hours = $715
Overhead applied to Job T268
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Collini Corporation Has Two Production Departments, Machining and Customizing