Eisentrout 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 T272. The following data were recorded for this job:

-The predetermined overhead rate for the Machining Department is closest to:
A) $22.93 per machine-hour
B) $6.50 per machine-hour
C) $2.10 per machine-hour
D) $8.60 per machine-hour

Question

Eisentrout 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 T272. The following data were recorded for this job:
 
-The predetermined overhead rate for the Machining Department is closest to:
A) $22.93 per machine-hour 
B) $6.50 per machine-hour 
C) $2.10 per machine-hour 
D) $8.60 per machine-hour

Quizplus · Accepted Answer

Machining Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $104,000 + ($2.10 per machine-hour × 16,000 machine-hours)
= $104,000 +$33,600 = $137,600
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $137,600 ÷ 16,000 machine-hours = $8.60 per machine-hour

Eisentrout Corporation Has Two Production Departments, Machining and Customizing