Figure 4-4 Mannitou Company made the following predictions for 2014:
Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is
A) $69,000.
B) $75,000.
C) $63,000.
D) $66,000.

Question

Figure 4-4 Mannitou Company made the following predictions for 2014:
 Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is
A) $69,000. 
B) $75,000. 
C) $63,000. 
D) $66,000.

Quizplus · Accepted Answer

Using the machine hours to apply factory overhead, we can calculate the overhead rate as follows:
Overhead rate = Total estimated overhead costs ÷ Total estimated machine hours = $150,000 ÷ 75,000 hours = $2 per machine hour

Then, we can calculate the total cost of Job A2 as follows:
Direct labor cost + Direct materials cost + Applied overhead = Prime costs
Direct labor cost = 3,000 hours × $12 per hour = $36,000
Prime costs = $57,000
Direct materials cost = Prime costs - Direct labor cost = $57,000 - $36,000 = $21,000
Applied overhead = 2,000 machine hours × $2 per machine hour = $4,000
Total cost of Job A2 = $36,000 + $21,000 + $4,000 = $63,000. Therefore, the correct answer is C.

Figure 4-4 Mannitou Company Made the Following Predictions for 2014