Deloria Corporation has two production departments, Forming and Assembly. 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 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: During the current month the company started and finished Job T288. The following data were recorded for this job:
The predetermined overhead rate for the Assembly Department is closest to:
A) $3.00 per direct labor-hour
B) $12.70 per direct labor-hour
C) $9.70 per direct labor-hour
D) $5.35 per direct labor-hour

Question

Deloria Corporation has two production departments, Forming and Assembly. 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 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:  During the current month the company started and finished Job T288. The following data were recorded for this job:
 The predetermined overhead rate for the Assembly Department is closest to:
A) $3.00 per direct labor-hour 
B) $12.70 per direct labor-hour 
C) $9.70 per direct labor-hour 
D) $5.35 per direct labor-hour

Quizplus · Accepted Answer

To determine the overhead applied to Job T288 in the Forming Department, we multiply the predetermined overhead rate by the actual machine-hours used: 
Predetermined overhead rate = Estimated overhead / Estimated machine-hours = $98,560 / 8,600 = $11.45 per machine-hour 
Overhead applied to Job T288 in the Forming Department = $11.45 per machine-hour x 2,100 machine-hours = $24,045

To determine the overhead applied to Job T288 in the Assembly Department, we multiply the predetermined overhead rate by the actual direct labor-hours used: 
Predetermined overhead rate = Estimated overhead / Estimated direct labor-hours = $142,560 / 14,800 = $9.62 per direct labor-hour 
Overhead applied to Job T288 in the Assembly Department = $9.62 per direct labor-hour x 2,500 direct labor-hours = $24,050

Therefore, the predetermined overhead rate for the Assembly Department is closest to $9.70 per direct labor-hour (choice C is close but not exact).

Deloria Corporation Has Two Production Departments, Forming and Assembly