Question

XYZ Company has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate (POHR) in each department. The Machining Department's POHR is based on machine-hours (Mhrs) and the Customizing Department's POHR is based on direct labor-hours (DLH). At the beginning of the current year, the company estimated the following yearly Mhrs and DLH to be used in each department: 20,000 Mhrs and 15,000 DLH in the Marching Department; 10,000 Mhrs and 25,000 DLH in the Customizing Department. The company also estimated the yearly total manufacturing overhead cost in each department: OMR150,000 in the Machining Department and OMR100,000 in the Customizing Department. During the year, Job XY incurred the following number of hours in each department: 38 Mhrs and 30 DLH in the Machining Department; and 80 Mhrs and 50 DLH in the Customizing Department. What is the total amount of manufacturing overhead that should be applied to Job XY during the year? Select one: O a. OMR515 O b. OMR545 O c. OMR545 O d. OMR485 O e. None of the answers given

2. Company XYZ produced 1,000 units of product A. At this level, the variable manufacturing costs were OMR600,000 and the variable selling and administrative costs were OMR110,000. Furthermore, the total fixed cost was OMR140,000. Assuming the company increased the production level to 1,050 units, what would be the increase in total manufacturing costs? Select one: O a. OMR37,000 O b. OMR30,000 O c. OMR42,500 O d. None of the given answers O e. OMR35,500

Answer 1

1.

Predetermined overhead rate = Estimated manufactuing overhead / Estimated activity

Machining = 150,000 / 20,000 = OMR7.5 per machine hour

Customizing = 100,000 / 25,000 = OMR4 per direct labor hour

Total manufacturing overhead applied to Job XY:

Machining = 38 * OMR7.5 = OMR285

Customizing = 50 * OMR4 = OMR200

Total manufacturing overhead applied to Job XY = 285 + 200 = OMR485

Hence option d is correct.

2.

Increased units = 1,050 - 1,000 = 50 units

Variable manufacturing cost per unit = 600,000 / 1,000 = OMR600 per unit

Increase in manufacturing costs = 50 * OMR600 = OMR30,000

Hence option b is correct.