Eisentrout Corporation has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining 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: During the current month the company started and finished Job T272. The following data were recorded for this job:
The predetermined overhead rate for the Customizing Department is closest to:
A) $3.30 per direct labor-hour
B) $12.70 per direct labor-hour
C) $9.40 per direct labor-hour
D) $4.76 per direct labor-hour

Question

Eisentrout Corporation has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining 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:  During the current month the company started and finished Job T272. The following data were recorded for this job:
 The predetermined overhead rate for the Customizing Department is closest to:
A) $3.30 per direct labor-hour 
B) $12.70 per direct labor-hour 
C) $9.40 per direct labor-hour 
D) $4.76 per direct labor-hour

Quizplus · Accepted Answer

To calculate the predetermined overhead rate for the Customizing Department, we need to use the following formula:

Predetermined Overhead Rate = Estimated Overhead / Estimated Direct Labor Hours

We are given the estimated overhead for the Customizing Department as $258,400 and the estimated direct labor hours as 20,800. Plugging these numbers into the formula, we get:

Predetermined Overhead Rate = $258,400 / 20,800 = $12.50 per direct labor-hour

Therefore, the closest answer choice is B, which is $12.70 per direct labor-hour.

Eisentrout Corporation Has Two Production Departments, Machining and Customizing