Mahon Corporation has two production departments, Casting and Customizing.The company uses a job-order costing system and computes a predetermined overhead rate in each production department.The Casting 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 T138.The following data were recorded for this job: The amount of overhead applied in the Customizing Department to Job T138 is closest to:
A)$588.00
B)$95,200.00
C)$816.00
D)$228.00

Question

Mahon Corporation has two production departments, Casting and Customizing.The company uses a job-order costing system and computes a predetermined overhead rate in each production department.The Casting 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 T138.The following data were recorded for this job:  The amount of overhead applied in the Customizing Department to Job T138 is closest to:
A)$588.00 
B)$95,200.00 
C)$816.00 
D)$228.00

Quizplus · Accepted Answer

The amount of overhead applied in the Customizing Department is calculated as follows:
Predetermined overhead rate = Estimated overhead cost/Estimated total direct labor-hours in the department
Predetermined overhead rate = $168,000 / 28,000 hours = $6 per direct labor-hour
The direct labor-hours for Job T138 in the Customizing Department = 136 hours
Therefore, the overhead applied to Job T138 in the Customizing Department = $6 per hour x 136 hours = $816.00. Thus, option C is the best choice. Customizing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)
= $68,600 + ($3.80 per direct labor-hour × 7,000 direct labor-hours)
= $68,600 + $26,600 = $95,200
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $95,200 ÷7,000 direct labor-hours = $13.60 per direct labor-hour
Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $13.60 per direct labor-hour × 60 direct labor-hours = $816

Mahon Corporation Has Two Production Departments, Casting and Customizing