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

The total cost of Job A948 can be computed as follows:
Direct Materials Cost: 300 + 200 + 400 = $900
Direct Labor Cost: 30 + 20 = $50
Manufacturing Overhead Cost: 
- Forming Department: 4 machine-hours x $4.50 = $18
- Finishing Department: 5 direct labor-hours x $6.00 = $30
Total Manufacturing Cost: $900 + $50 + $18 + $30 = $998
Markup: $998 x 40% = $399.2
Selling Price: $998 + $399.2 = $1,397.20
Rounding up to the nearest cent, the selling price for Job A948 would be $6,197.80. 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 11ea7998_5f60_2e0d_911b_f72887402688_TB2627_00_TB2627_00 11ea7998_5f60_551e_911b_4db92145817e_TB2627_00_TB2627_00

Columbo Corporation Has Two Production Departments, Forming and Finishing