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Bassett Corporation has two production departments, Milling and Customizing
Bassett Corporation has two production departments, Milling and Customizing. The
company uses a job-order costing system and computes a predetermined overhead rate in each
production department. The Milling Department's predetermined overhead rate is based on
machine-hours and the Customizing Department's predetermined overhead rate is based on direct
labor-hours. At the beginning of the current year, the company had made the following estimates:
Milling
Customizing
Machine-hours
16,000
12,000
Direct labor-hours
2,000
8,000
Total fixed manufacturing overhead cost
$
118,400
$
87,200
Variable manufacturing overhead per machine-hour
$
2.10
Variable manufacturing overhead per direct labor-hour
$
3.30
The predetermined overhead rate for the Milling Department is closest to:
A) $19.00 per machine-hour
B) $2.10 per machine-hour
C) $9.50 per machine-hour
D) $7.40 per machine-hour
Expert Solution
Computation of Predetermined Overhead Rate for Milling Department:
Total manufacturing overhead = Fixed manufacturing overhead + Variable manufcturing overhead
Total manufacturing overhead for milling department = 118,400 + (2.10 * 16000)
= 118,400 + 33,600
= 152000
Predetermined overhead rate = Total manufacturing overhead / Machine hours
= 152,000 / 16000
= $9.50 per machine hour
So, the correct option is C "$9.50 per macine hour.
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