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 Customizing Department to Job T272 is closest to:
A) $76,200.00
B) $762.00
C) $564.00
D) $198.00

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 Customizing Department to Job T272 is closest to:
A) $76,200.00 
B) $762.00 
C) $564.00 
D) $198.00

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
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $12.70 per direct labor-hour × 60 direct labor-hours = $762

Eisentrout Corporation Has Two Production Departments, Machining and Customizing