Mahon Corporation has two production departments, Casting and Customizing. 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 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 T138. The following data were recorded for this job:
The amount of overhead applied in the Customizing Department to Job T138 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) $688.00
B) $116,960.00
C) $816.00
D) $344.00

Question

Mahon Corporation has two production departments, Casting and Customizing. 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 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 T138. The following data were recorded for this job:
 The amount of overhead applied in the Customizing Department to Job T138 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) $688.00 
B) $116,960.00 
C) $816.00 
D) $344.00

Quizplus · Accepted Answer

To calculate the overhead cost applied in the Customizing Department to Job T138, we need to use the predetermined overhead rate for the Customizing Department, which is $20 per direct labor-hour.

The job required 76 direct labor-hours, so the amount of overhead applied in the Customizing Department is:

$20 per DLH x 76 DLH = $1,520

However, we also need to take into account the under-applied overhead balance from the previous month, which was $704. To apply this balance to Job T138, we divide it by the total direct labor-hours for the month in the Customizing Department:

$704 ÷ 2,800 DLH = $0.25 per DLH

Finally, we calculate the total overhead applied in the Customizing Department to Job T138 by adding the two amounts:

$1,520 + $76 x $0.25 = $1,760

Therefore, the closest answer is C) $816.00.

Mahon Corporation Has Two Production Departments, Casting and Customizing