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 Customizing Department is closest to:
A) $4.55 per direct labor-hour
B) $3.90 per direct labor-hour
C) $10.50 per direct labor-hour
D) $14.40 per direct labor-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 Customizing Department is closest to:
A) $4.55 per direct labor-hour 
B) $3.90 per direct labor-hour 
C) $10.50 per direct labor-hour 
D) $14.40 per direct labor-hour

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)
= $63,000 + ($3.90 per direct labor-hour × 6,000 direct labor-hours)
= $63,000 + $23,400 = $86,400
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $86,400 ÷6,000 direct labor-hours = $14.40 per direct labor-hour

Jurica Corporation Has Two Production Departments, Forming and Customizing