Question

G.A. Courtney & Sons build homes. Each home is considered a job; costs are accumulated by job to determine the final cost of a home. The company builds two types of homes. Standard models are framed at factory using high-tech machinery and take little direct labor to complete. Custom homes are framed and finished at the building site using mostly direct labor and few machine hours. Annual estimates for each department follow:

	Framing	Finishing	Total
Total Overhead	$400,000	$167,600	$567,600
DLH	9,700	41,900	51,600
MH	160,000	-0-	160,000

During the year, five jobs were started and completed. Jobs #101 and #103 were custom homes. The remaining jobs were standard models. Direct materials (DM), direct labor (DL), direct labor hours (DLH), and machine hours (MH) for each job follow:

	DM	DL	Framing DLH	Finishing DLH	Total DLH	MH
Job #101	$364,000	$280,000	1,000	19,000	20,000	500
Job #102	90,000	100,000	2,800	500	3,300	46,500
Job #103	455,000	350,000	600	20,890	21,490	1,600
Job #104	144,000	160,000	2,100	800	2,900	52,000
Job #105	127,800	142,000	3,200	710	3,910	59,400
Total	$1,180,800	$1,032,000	9,700	41,900	51,600	160,000

REQUIRED:

(1)        Calculate the predetermined overhead rate (POR) using:

(a)        A single, plantwide cost pool and DLH as the application base.

(b)        Separate total overhead amounts for each department (one total for framing and one for finishing). Use MH as the application base for framing and DLH for finishing.

PLEASE SHOW ALL CALCULATIONS

Answer 1

1-a.

Predetermined overhead rate = Estimated total overhead / Estimated total direct labor hours

Predetermined overhead rate = $567,600 / 51,600 = $11 per direct labor hour.

1-b.

Predetermined overhead rate (Framing) = Estimated overhead cost / Estimated machine hours

Predetermined overhead rate (Framing) = $400,000 / 160,000 = $2.5 per machine hour

Predetermined overhead rate (Finishing) = Estimated overhead cost / Estimated direct labor hours

Predetermined overhead rate (Finishing) = $167,600 / 41,900 = $4 per direct labor hour