Question

# Mahon Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system...

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:

 Casting Customizing Machine-hours 17,600 14,600 Direct labor-hours 6,200 7,300 Total fixed manufacturing overhead cost \$ 88,000 \$ 69,350 Variable manufacturing overhead per machine-hour \$ 3.00 Variable manufacturing overhead per direct labor-hour \$ 5.90

During the current month the company started and finished Job T138. The following data were recorded for this job:

 Job T138: Casting Customizing Machine-hours 70 30 Direct labor-hours 9 90

The amount of overhead applied in the Customizing Department to Job T138 is closest to

For Customizing department

Total fixed manufacturing overhead cost = \$69,350

Variable manufacturing overhead per direct labor-hour = \$5.90

Estimated direct labor hours = 7,300

= 5.90+69,350/7,300

= 5.90+9.50

= \$15.4 per direct labor hour

Direct labor hours used in Customizing department = 90

Overhead applied to Customizing department = Direct labor hours used in Customizing department x Predetermined overhead rate

= 90 x 15.4

= \$1,386

The amount of overhead applied in the Customizing Department to Job T138 is closest to = \$1,386

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