Fatzinger Corporation has two production departments,Milling and Assembly.The company uses a job-order costing system and computes a predetermined overhead rate in each production department.The Milling 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:
The predetermined overhead rate for the Assembly Department is closest to:
A) $8.20 per direct labor-hour
B) $3.40 per direct labor-hour
C) $4.06 per direct labor-hour
D) $11.60 per direct labor-hour

Question

Fatzinger Corporation has two production departments,Milling and Assembly.The company uses a job-order costing system and computes a predetermined overhead rate in each production department.The Milling 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:
 The predetermined overhead rate for the Assembly Department is closest to:
A) $8.20 per direct labor-hour 
B) $3.40 per direct labor-hour 
C) $4.06 per direct labor-hour 
D) $11.60 per direct labor-hour

Quizplus · Accepted Answer

Assembly Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $57,400 + ($3.40 per direct labor-hour × 7,000 direct labor-hours)
= $57,400 + $23,800 = $81,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $81,200 ÷7,000 direct labor-hours = $11.60 per direct labor-hour

Fatzinger Corporation Has Two Production Departments,Milling and Assembly