Bassett Corporation has two production departments, Milling and Customizing.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 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: The predetermined overhead rate for the Milling Department is closest to:

Question

Bassett Corporation has two production departments, Milling and Customizing.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 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:  The predetermined overhead rate for the Milling Department is closest to:

Quizplus · Accepted Answer

Milling Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)
= $118,400 + ($2.10 per machine-hour × 16,000 machine-hours)
= $118,400 +$33,600 = $152,000
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $152,000 ÷ 16,000 machine-hours = $9.50 per machine-hour

Bassett Corporation Has Two Production Departments, Milling and Customizing