Kroeker Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling 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 T898. The following data were recorded for this job:

-The amount of overhead applied in the Customizing Department to Job T898 is closest to:
A) $450.00
B) $119,700.00
C) $665.00
D) $215.00

Question

Kroeker Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling 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 T898. The following data were recorded for this job:
 
-The amount of overhead applied in the Customizing Department to Job T898 is closest to:
A) $450.00 
B) $119,700.00 
C) $665.00 
D) $215.00

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)
= $81,000 + ($4.30 per direct labor-hour × 9,000 direct labor-hours)
= $81,000 + $38,700 = $119,700
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $119,700 ÷9,000 direct labor-hours = $13.30 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $13.30 per direct labor-hour × 50 direct labor-hours = $665

Kroeker Corporation Has Two Production Departments, Milling and Customizing