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 amount of overhead applied in the Assembly Department to Job P131 is closest to:
A) $228.00
B) $558.00
C) $65,500.00
D) $786.00

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 amount of overhead applied in the Assembly Department to Job P131 is closest to:
A) $228.00 
B) $558.00 
C) $65,500.00 
D) $786.00

Quizplus · Accepted Answer

Assembly Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $46,500 + ($3.80 per direct labor-hour × 5,000 direct labor-hours)
= $46,500 + $19,000 = $65,500
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $65,500 ÷5,000 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

Tiff Corporation Has Two Production Departments, Casting and Assembly