Question - Departmental Overhead Rates
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 8,400 80,000
Machine-hours 65,000 2,500
Total fixed manufacturing overhead cost $ 360,000 $ 458,000
Variable manufacturing overhead per machine-hour $ 4.00 -
Variable manufacturing overhead per direct labor-hour - $ 2.75
Required:
1. Compute the predetermined overhead rate to be used in each department.
2. Assume that the overhead rates you computed in (1) above are in effect. The job cost sheet for Job 407, which was started and completed during the year, showed the following:
Department
Milling Assembly
Direct labor-hours 6 18
Machine-hours 83 4
Materials requisitioned $ 770 $ 360
Direct labor cost $ 37 $ 180
Compute the total manufacturing cost assigned to Job 407.
3. Would you expect substantially different amounts of overhead cost to be charged to some jobs if the company used a plantwide overhead rate based on direct labor-hours instead of using departmental rates?