Columbo Corporation has two production departments,Forming and Finishing.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 Finishing 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 A948.The following data were recorded for this job:
If the company marks up its manufacturing costs by 40% then the selling price for Job A948 would be closest to:
A) $6,197.80
B) $1,770.80
C) $4,427.00
D) $6,818.00

Question

Columbo Corporation has two production departments,Forming and Finishing.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 Finishing 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 A948.The following data were recorded for this job:
 If the company marks up its manufacturing costs by 40% then the selling price for Job A948 would be closest to:
A) $6,197.80 
B) $1,770.80 
C) $4,427.00 
D) $6,818.00

Quizplus · Accepted Answer

Forming Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $110,500 + ($1.60 per machine-hour × 17,000 machine-hours)
= $110,500 +$27,200 = $137,700
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $137,700 ÷ 17,000 machine-hours = $8.10 per machine-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $8.10 per machine-hour × 70 machine-hours = $567
Finishing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $78,300 + ($3.30 per direct labor-hour × 9,000 direct labor-hours)
= $78,300 + $29,700 = $108,000
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $108,000 ÷9,000 direct labor-hours = $12.00 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $12.00 per direct labor-hour × 50 direct labor-hours = $600
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Columbo Corporation Has Two Production Departments,Forming and Finishing