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 Customizing Department is closest to:
A) $3.30 per direct labor-hour
B) $12.70 per direct labor-hour
C) $9.40 per direct labor-hour
D) $4.76 per direct labor-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 Customizing Department is closest to:
A) $3.30 per direct labor-hour 
B) $12.70 per direct labor-hour 
C) $9.40 per direct labor-hour 
D) $4.76 per direct labor-hour

Quizplus · Accepted Answer

Customizing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $56,400 + ($3.30 per direct labor-hour × 6,000 direct labor-hours)
= $56,400 + $19,800 = $76,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $76,200 ÷6,000 direct labor-hours = $12.70 per direct labor-hour

Eisentrout Corporation Has Two Production Departments, Machining and Customizing