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 materials cost. At the beginning of the most recent year, the company's management made the following estimates for the year:??Department ADepartment B?Machine-hours70,00019,000?Direct labor-hours30,00060,000?Direct materials$195,000$282,000?Direct labor$260,000$520,000?Manufacturing overhead$420,000$705,000Job 243 entered into production an April 1 and was completed on May 12. The company's cost records show the following information about the job:??Department ADepartment
B?Machine-hours25060?Direct labor-hours70120?Direct materials$840$1,100?Direct labor$610$880At the end of the year, the records of Dotsero showed the following actual cost and operating data for all jobs worked on during the year:??Department ADepartment B?Machine-hours61,00020,000?Direct labor-hours28,00066,000?Direct materials$156,000$284,000?Manufacturing overhead$385,000$705,000Required:a. Compute the predetermined overhead rates for Department A and Department B.b. Compute the total overhead cost applied to Job 243.c. Compute the amount of underapplied or overapplied overhead in each department at the end of the current year.
What will be an ideal response?
a. Department A predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $420,000 ÷ 70,000 machine-hours = $6.00 per machine-hour
Department B predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $705,000 ÷ /$282,000 = 250% of direct materials cost
b. Overhead applied to Job 243:
| ? | Department A: $6.00 per machine-hour × 250 machine-hours | $1,500 |
| ? | Department B: 2.5 × $1,100 | $2,750 |
| ? | Total overhead applied to Job 243 | $4,250 |
c.
| ? | ? | Department A | Department B |
| ? | Manufacturing overhead incurred | $385,000 | $705,000 |
| ? | Manufacturing overhead applied: | ? | ? |
| ? | 61,000 × $6.00 | 366,000 | ? |
| ? | $284,000 × 250% | ? | 710,000 |
| ? | Underapplied (overapplied) overhead | $19,000 | $(5,000) |
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