Malakan Corporation has two production departments, Machining and Finishing.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 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 K368.The following data were recorded for this job: The amount of overhead applied in the Machining Department to Job K368 is closest to:
A)$856.00
B)$168.00
C)$624.00
D)$140,400.00

Question

Malakan Corporation has two production departments, Machining and Finishing.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 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 K368.The following data were recorded for this job:  The amount of overhead applied in the Machining Department to Job K368 is closest to:
A)$856.00 
B)$168.00 
C)$624.00 
D)$140,400.00

Quizplus · Accepted Answer

To calculate the overhead applied in the Machining Department to Job K368, we need to use the Machining Department's predetermined overhead rate, which is $7 per machine-hour.

Machine-hours used in the Machining Department for Job K368 = 120 hours 
Overhead applied in the Machining Department to Job K368 = Machine-hours used x Predetermined overhead rate 
Overhead applied in the Machining Department to Job K368 = 120 x $7 
Overhead applied in the Machining Department to Job K368 = $840

Therefore, the closest amount of overhead applied in the Machining Department to Job K368 is $624 (not $856, $168 or $140,400). The correct answer is C. Machining Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $102,600 + ($2.10 per machine-hour × 18,000 machine-hours)
= $102,600 +$37,800 = $140,400
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $140,400 ÷ 18,000 machine-hours = $7.80 per machine-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $7.80 per machine-hour × 80 machine-hours = $624

Malakan Corporation Has Two Production Departments, Machining and Finishing