Fatzinger Corporation has two production departments, Milling and Assembly. 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 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: The predetermined overhead rate for the Assembly Department is closest to:

Question

Fatzinger Corporation has two production departments, Milling and Assembly. 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 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:  The predetermined overhead rate for the Assembly Department is closest to:

Quizplus · Accepted Answer

Assembly Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $57,400 + ($3.40 per direct labor-hour × 7,000 direct labor-hours)
= $57,400 + $23,800 = $81,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $81,200 ÷ 7,000 direct labor-hours = $11.60 per direct labor-hour

Fatzinger Corporation Has Two Production Departments, Milling and Assembly