Question

Problem 15-04A a-c (Video) Oriole Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2020, the following estimates were made for the year. Department D E K Manufacturing overhead $1,260,000 $1,625,000 $960,000 Direct labor costs $1,800,000 $1,375,000 $495,000 Direct labor hours 110,000 125,000 44,000 Machine hours 440,000 550,000 120,000 During January, the job cost sheets showed the following costs and production data. Department D E K Direct materials used $154,000 $138,600 $85,800 Direct labor costs $132,000 $121,000 $41,250 Manufacturing overhead incurred $108,900 $136,400 $86,900 Direct labor hours 8,800 12,100 3,850 Machine hours 37,400 49,500 10,390 Compute the predetermined overhead rate for each department

Answer 1

Answer and Explanation:

The computation of the predetermined overhead rate for each department is given below:

For department D

= Estimated manufacturing overhead ÷ direct labor cost

= $1,260,000 ÷ $1,800,000

= 70% of direct labor cost

For department E

= Estimated manufacturing overhead ÷ direct labor hours

= $1,625,000 ÷ 125,000

= $13 per direct labor hours

For department K

= Estimated manufacturing overhead ÷ machine hours

= $960,000 ÷ 120,000

= $8 per machine hours