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 amount of overhead applied in the Machining Department to Job T272 is closest to:
A) $137,600.00
B) $126.00
C) $516.00
D) $564.00

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 amount of overhead applied in the Machining Department to Job T272 is closest to:
A) $137,600.00 
B) $126.00 
C) $516.00 
D) $564.00

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
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $8.60 per machine-hour × 60 machine-hours = $516

Eisentrout Corporation Has Two Production Departments, Machining and Customizing