Tiff Corporation has two production departments, Casting and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department's predetermined overhead rate is based on machine-hours and the Assembly 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 P131. The following data were recorded for this job:

-The predetermined overhead rate for the Casting Department is closest to:
A) $9.40 per machine-hour
B) $7.60 per machine-hour
C) $1.80 per machine-hour
D) $31.96 per machine-hour

Question

Tiff Corporation has two production departments, Casting and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department's predetermined overhead rate is based on machine-hours and the Assembly 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 P131. The following data were recorded for this job:
 
-The predetermined overhead rate for the Casting Department is closest to:
A) $9.40 per machine-hour 
B) $7.60 per machine-hour 
C) $1.80 per machine-hour 
D) $31.96 per machine-hour

Quizplus · Accepted Answer

Casting Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $129,200 + ($1.80 per machine-hour × 17,000 machine-hours)
= $129,200 +$30,600 = $159,800
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $159,800 ÷ 17,000 machine-hours = $9.40 per machine-hour

Tiff Corporation Has Two Production Departments, Casting and Assembly