Question

Assume a company has two manufacturing departments – Assembly and Fabrication. The company considers all of its manufacturing overhead costs to be fixed costs. The first set of data below is budgeted data for the company as a whole that was estimated at the beginning of the year. The second set of data below is actual data for the company as a whole that was derived at the end of the year. The third set of data relates to one particular job completed during the year– Job Z.

Budgeted Data	Assembly			Fabrication
Manufacturing overhead costs	$	300,000		$	400,000
Direct labor hours		25,000			15,000
Machine hours		10,000			50,000

Actual Data	Assembly			Fabrication
Manufacturing overhead costs	$	330,000		$	380,000
Direct labor hours		27,000			16,000
Machine hours		10,500			48,000

Job Z	Assembly			Fabrication
Direct labor hours	10.50	hours		2	hours
Machine hours	1	hour		7.50	hours

Assume the company uses departmental predetermined overhead rates. It uses direct labor-hours as the allocation base in Assembly and machine-hours as the allocation base in Fabrication. How much manufacturing overhead would be applied from both departments to Job Z?

Answer 1

Allocation of Manufacturing OH to Job Z
Particulars			Amount
Assembly	(10.5 hours x $ 12)		$ 126.00
Fabrication	(7.5 hours x $ 8)		$   60.00
			$ 186.00

.

Workings:

Computation of Departmental predetermined OH rates
Particulars			Assembly	Fabrication
Manufacturing overhead costs			$ 3,00,000.00	$ 4,00,000.00
Direct labor hours			25000
Machine hours				50000
OH rates			$            12.00	$              8.00