Garza 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:

-The estimated total manufacturing overhead for the Customizing Department is closest to:
A) $54,110
B) $30,100
C) $98,700
D) $68,600

Question

Garza 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:
 
-The estimated total manufacturing overhead for the Customizing Department is closest to:
A) $54,110 
B) $30,100 
C) $98,700 
D) $68,600

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)
= $68,600 + ($4.30 per direct labor-hour × 7,000 direct labor-hours)
= $68,600 + $30,100 = $98,700

Garza Corporation Has Two Production Departments, Casting and Customizing