The following information is available pertaining to the Production Division of Clarkson Enterprises: $\begin{array} { l c c c } & \text { Assembly Dept. } & \text { Finishing Dept. } & \text { Total } \ \text { Overhead costs } & \$ 7,500 & \$ 22,500 & \$ 30,000 \ \text { Direct labor hours } & 7,500 & 2,500 & 10,000 \ \text { Machine hours } & 2,500 & 7,500 & 10,000 \end{array}$
Production information pertaining to Job 4X5:
$\begin{array}{lrrr}
&\text { Assembly Dept. }& \text { Finishing Dept. } &\text { Total }\
\text { Prime costs } & \$ 1,250 & \$ 0 & \$ 1,250 \
\text { Direct labor hours } & 250 & 0 & 250 \
\text { Machine hours } & 0 & 0 & 0\
\text { Units produced }&500&0&500
\end{array}$
Based on departmental overhead rates, what is the cost of Job 4X5? Departmental overhead rates for the Assembly Department are based on direct labor hours, while departmental overhead rates for the Finishing Department are based on machine hours.
A)$7,500
B)$8,750
C)$1,500
D)$1,250

Question

Quizplus · Accepted Answer

The overhead rate for the Assembly Department is calculated as total overhead costs divided by total direct labor hours, which is $7,500 / 7,500 = $1 per direct labor hour. Job 4X5 used 250 direct labor hours in the Assembly Department, so the overhead cost allocated to Job 4X5 is 250 hours * $1/hour = $250. Since there are no machine hours used in Job 4X5, no overhead from the Finishing Department is allocated. The total cost of Job 4X5 is the sum of its prime costs and the allocated overhead, which is $1,250 (prime costs) + $250 (overhead) = $1,500.

The Following Information Is Available Pertaining to the Production Division