Question

Dotsero Technology, Inc., has a job-order costing system. The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labor hours. At the beginning of the most recent year, the company's management made the following estimates for the year.

Dept. A Dept. B

Machine-hours. . . . . . . . . . . . . . . 30,000 60,000

Direct labor-hours. . . . . . . . . . . . .70,000 20,000

Manufacturing overhead cost. . . . $420,000 $600,000

Job 243 entered into production on April 1 and was completed on May 12. The company's actual cost records show the following information about the job.

Dept. A Dept. B

Machine-hours. . . . . . . . . . . . . . . . . . . 250 60

Direct labor-hours. . . . . . . . . . . . . . . . 70 120

Direct materials cost. . . . . . . . . . . . . . . $840 $1,100

Direct labor cost. . . . . . . . . . . . . . . . . . $610 $880

Compute the total manufacturing cost of Job 243. Note: "Total manufacturing cost" is the sum of direct materials, direct labor, and applied manufacturing overhead cost in both Department A and Department B.

$11,170

$10,240

$7,100

$5,580

$10,530

$4,950

$7,770

$10,630

Answer 1

Answer: Total Manufacturing Cost of the job $ $

Direct material cost:

Department A 840

Department B 1,100 1940

Direct labour cost:

Department A 610

Department B 880 1490

Manufacturing overhead:

Department A ($14x 250) 3,500

Department B ($30 x 120) 3,600 7,100

Total manufacturing cost 10,530

The correct answer is $10,530.

The overhead absorption rate for each department is calculated as:

Department A = $420,000/30,000 machine hours

= $14/machine hour

Department B = $600,000/20,000 direct labour hours

= $30/direct labour hour

Explanation: In the question, the requirement is to determine the total manufacturing cost of the job. The examiner has provided the direct material cost, direct labour cost, machine hours and direct labour hours relating to the job. Thus, we need to add the direct material cost, direct labour cost and manufacturing overhead cost derived from the predetermined rate (absorption rate). The absorption rate for department A is based on machine hour while the absorption rate for department B is based on direct labour hour. The absorption rates are calculated from the company's estimates (budget) and it is calculated using the formula:

Overhead absorption rate = Budgeted overhead/Budgeted activity level

The budgeted activity level could be machine hours or direct labour hours.