Question

Eisentrout Corporation has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining 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:

	Machining		Customizing
Machine-hours		16,000		11,000
Direct labor-hours		2,000		6,000
Total fixed manufacturing overhead cost	$	104,000	$	56,400
Variable manufacturing overhead per machine-hour	$	2.10
Variable manufacturing overhead per direct labor-hour			$	3.30

During the current month the company started and finished Job T272. The following data were recorded for this job:

Job T272:	Machining		Customizing
Machine-hours		60		30
Direct labor-hours		10		60

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

Multiple Choice

$22.93 per machine-hour

$6.50 per machine-hour

$2.10 per machine-hour

$8.60 per machine-hour

Answer 1

Total Fixed Manufacturing Overhead Cost	104000
Machine Hour for Machining Department	16000	Machine Hour
Fixed Overhead per machine hour	=104000/16000
	6.5
Variable Overhead rate per machine hour	2.1
Therefore predetermined overhead rate per machine hour for Machining department	=6.5+2.1
	8.6
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