Question

Diewold Company has two departments, Milling and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Milling Department bases its rate on machine-hours, and the Assembly Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Department Milling Assembly Direct labor-hours 8,000 80,000 Machine-hours 60,000 3,000 Total fixed manufacturing overhead cost $ 390,000 $ 500,000 Variable manufacturing overhead per machine-hour $ 2.00 - Variable manufacturing overhead per direct labor-hour - $ 3.75 Required: Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.

Answer 1

The predetermined overhead rate for the Milling Department at Diewold Company is $8.50 per machine-hour and for the Assembly Department is $10.00 per direct labor-hour after considering both fixed and variable manufacturing overhead costs.

Step-by-step explanation:

To calculate the predetermined overhead rate for each department at Diewold Company, we need to divide the total estimated overhead costs by the estimated base activity for each department. For the Milling Department, the base is machine-hours, and for the Assembly Department, the base is direct labor-hours.

Milling Department

Total fixed manufacturing overhead cost: $390,000
Estimated machine-hours: 60,000 hours
Predetermined overhead rate (Fixed cost / Machine-hours): $390,000 / 60,000 hours = $6.50 per machine-hour

Now, adding the variable cost per machine-hour:
Fixed rate: $6.50 per machine-hour
Variable rate: $2.00 per machine-hour
Total overhead rate for Milling: $6.50 + $2.00 = $8.50 per machine-hour

Assembly Department

Total fixed manufacturing overhead cost: $500,000
Estimated direct labor-hours: 80,000 hours
Predetermined overhead rate (Fixed cost / Labor-hours): $500,000 / 80,000 hours = $6.25 per direct labor-hour

Now, adding the variable cost per direct labor-hour:
Fixed rate: $6.25 per direct labor-hour
Variable rate: $3.75 per direct labor-hour
Total overhead rate for Assembly: $6.25 + $3.75 = $10.00 per direct labor-hour

Answer 2

Instructions are listed below

Step-by-step explanation:

Giving the following information:

The Milling Department bases its rate on machine-hours, and the Assembly Department bases its rate on direct labor-hours.

Milling

Machine-hours 60,000

Total fixed manufacturing overhead cost $ 390,000

Variable manufacturing overhead per machine-hour $ 2.00

Assembly

Direct labor-hours 80,000

Total fixed manufacturing overhead cost $ 500,000

Variable manufacturing overhead per direct labor-hour $ 3.75

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Milling:

Estimated manufacturing overhead rate= (390,000/60,000)+2= $8.5 per direct machine hour.

Assembly:

Estimated manufacturing overhead rate= (500,000/80,000) + 3.75= $10 per direct labor hour