Question

Shakespeare Company has two departments: Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Cutting Finishing Direct labor-hours 8,100 75,000 Machine-hours 64,500 1,200 Total fixed manufacturing overhead cost $370,000 $405,000 Variable manufacturing overhead per machine-hour $3.00 - Variable manufacturing overhead per direct labor-hour - $3.75 Compute the predetermined overhead rate to be used in each department.

Answer 1

The predetermined overhead rate to be used in cutting and the finishing department is $8.73 per hour and $9.15 per hour respectively

Step-by-step explanation:

The computation of predetermined overhead rate is shown below:

For Cutting department:

Predetermined overhead rate = (Estimated fixed manufacturing Overhead cost ÷ estimated machine hours) + Variable manufacturing overhead per machine-hour

= ($370,000 ÷ 64,500 hours) + $3.00

= $8.73 per hour

For Finishing Department:

Predetermined overhead rate = (Estimated l fixed manufacturing Overhead cost ÷ estimated direct labor hours) + Variable manufacturing overhead per direct labor-hour

= ($405,000 ÷ 75,000 hours) + $3.75

= $9.15 per hour