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:

	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

Answer 1

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

Predetermined overhead rate = Variable manufacturing overhead per direct labor-hour + Total fixed manufacturing overhead cost/Variable manufacturing overhead per direct labor-hour

= 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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