Question

Hickingbottom Corporation has two production departments, Forming and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Forming Department’s predetermined overhead rate is based on machine-hours and the Finishing 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:

	Forming		Finishing
Machine-hours		17,000		15,000
Direct labor-hours		1,000		7,000
Total fixed manufacturing overhead cost	$	96,900	$	65,800
Variable manufacturing overhead per machine-hour	$	2.00
Variable manufacturing overhead per direct labor-hour			$	3.60

During the current month the company started and finished Job M381. The following data were recorded for this job:

Job M381:	Forming		Finishing
Machine-hours		80		30
Direct labor-hours		30		40
Direct materials	$	840	$	350
Direct labor cost	$	750	$	1,000

The predetermined overhead rate for the Forming Department is closest to:

Multiple Choice

$5.70 per machine-hour

$7.70 per machine-hour

$2.00 per machine-hour

$18.70 per machine-hour

Answer 1

Total Fixed Manufacturing Overhead Cost	96900
Machine Hour for Forming Department	17000	Machine Hour
Fixed Overhead per machine hour	=96900/17000
	5.7
Variable Overhead rate per machine hour	2
Therefore predetermined overhead rate per machine hour for forming department	=5.7+2
	7.7
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