Question

Garcia, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

	Machining Department			Assembly Department
Budgeted manufacturing overhead	$	4,000,000		$	3,080,000
Actual manufacturing overhead		4,270,000			3,040,000
Budgeted direct-labor cost (based on practical capacity)		1,500,000			5,600,000
Actual direct-labor cost		1,450,000			5,780,000
Budgeted machine hours (based on practical capacity)		400,000			100,000
Actual machine hours		425,000			110,000

The data that follow pertain to job no. 775, the only job in production at year-end.

	Machining Department			Assembly Department
Direct material	$	24,500		$	6,800
Direct labor	$	27,800		$	58,700
Machine hours		360			150

Selling and administrative expense amounted to $2,500,000.

Required:

1. Assuming the use of normal costing, determine the predetermined overhead rates used in the Machining Department and the Assembly Department.

	Predetermined overhead rate
Machining department		per machine hour
Assembly department		% of direct-labor cost

Answer 1

• All requirement forms part of the answer
• Requirement 1

--Working

Working		Machining Department	Assembly Department
A	Budgeted Manufacturing Overhead	$      4,000,000.00	$ 3,080,000.00
	Allocation base	Machine hours	Direct Labor Cost
B	Allocation base budgeted amount	400,000	$ 5,600,000.00
C= A/B	Predetermined Overhead rate	$                    10.00	55%

--Answer

Predetermined overhead rate
Machining department	$               10.00	per machine hour
Assembly department	55%	of direct-labor cost