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 predetermined overhead rate for the Casting Department is closest to:

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 predetermined overhead rate for the Casting Department is closest to:

Quizplus · Accepted Answer

Casting Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $152,000 + ($2.10 per machine-hour × 20,000 machine-hours)
= $152,000 +$42,000 = $194,000
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $194,000 ÷ 20,000 machine-hours = $9.70 per machine-hour

Garza Corporation Has Two Production Departments, Casting and Customizing