Jurica Corporation has two production departments, Forming and Customizing. 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 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 predetermined overhead rate for the Forming Department is closest to:
A) $23.12 per machine-hour
B) $2.00 per machine-hour
C) $5.30 per machine-hour
D) $7.30 per machine-hour

Question

Jurica Corporation has two production departments, Forming and Customizing. 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 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 predetermined overhead rate for the Forming Department is closest to:
A) $23.12 per machine-hour 
B) $2.00 per machine-hour 
C) $5.30 per machine-hour 
D) $7.30 per machine-hour

Quizplus · Accepted Answer

Forming Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $100,700 + ($2.00 per machine-hour × 19,000 machine-hours)
= $100,700 +$38,000 = $138,700
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $138,700 ÷ 19,000 machine-hours = $7.30 per machine-hour

Jurica Corporation Has Two Production Departments, Forming and Customizing