Ahlheim Corporation has two production departments, Forming and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Forming Department's predetermined overhead rate is based on machine-hours and the Assembly 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 T924. The following data were recorded for this job:

-The total amount of overhead applied in both departments to Job T924 is closest to:
A) $1,157
B) $548
C) $609
D) $1,705

Question

Ahlheim Corporation has two production departments, Forming and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Forming Department's predetermined overhead rate is based on machine-hours and the Assembly 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 T924. The following data were recorded for this job:
 
-The total amount of overhead applied in both departments to Job T924 is closest to:
A) $1,157 
B) $548 
C) $609 
D) $1,705

Quizplus · Accepted Answer

Forming Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $102,400 + ($2.30 per machine-hour × 16,000 machine-hours)
= $102,400 +$36,800 = $139,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $139,200 ÷ 16,000 machine-hours = $8.70 per machine-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $8.70 per machine-hour × 70 machine-hours = $609
Assembly Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $55,200 + ($4.50 per direct labor-hour × 6,000 direct labor-hours)
= $55,200 + $27,000 = $82,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $82,200 ÷6,000 direct labor-hours = $13.70 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $13.70 per direct labor-hour × 40 direct labor-hours = $548
Overhead applied to Job T924
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Ahlheim Corporation Has Two Production Departments, Forming and Assembly