Question

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

	Casting		Customizing
Machine-hours		19,400		15,400
Direct labor-hours		6,500		7,700
Total fixed manufacturing overhead cost	$	120,280	$	81,620
Variable manufacturing overhead per machine-hour	$	1.80
Variable manufacturing overhead per direct labor-hour			$	3.50

During the current month the company started and finished Job T138. The following data were recorded for this job:

Job T138:	Casting		Customizing
Machine-hours	80		60
Direct labor-hours	15		80

The amount of overhead applied in the Customizing Department to Job T138 is closest to: (Round your intermediate calculations to 2 decimal places.)

a. $1,056.00

b. $108,570.00

c. $1,128.00

d. $528.00

Answer 1

The amount of overhead is computed as shown below:

Overhead rate of customizing department is computed as follows:

= Total fixed manufacturing overhead cost / Direct labor hours

= $ 81,620 / 7,700

= $ 10.6

Variable manufacturing overhead is computed as follows:

= Variable manufacturing overhead per direct labor-hour x Direct labor-hours

= $ 3.50 x 80

= $ 280

Fixed overhead manufacturing overhead is computed as follows:

= Overhead rate of customizing department x Direct labor-hours

= $ 10.6 x 80

= $ 848

So, the total amount of overhead is computed as follows:

= $ 280 + $ 848

= $ 1,128.00

So, the correct answer is option c.

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