Giannitti Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below:
Estimated machine-hours
36,000
Estimated variable manufacturing overhead $3.01 per machine-hour
Estimated total fixed manufacturing overhead $1,058,040
The predetermined overhead rate for the recently completed year was closest to:
$29.39 per machine-hour
$3.01 per machine-hour
$32.40 per machine-hour
$32.81 per machine-hour
Thach Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $665,000, variable manufacturing overhead of $3.00 per machine-hour, and 70,000 machine-hours. Recently, Job T321 was completed with the following characteristics:
Number of units in the job 30
Total machine-hours
Direct materials
$630
Direct labor cost
90
$2,880
The unit product cost for Job T321 is closest to:
$117.00
$154.50
$58.50
$51.50
The Correct Answer and Explanation is :
Let’s break down both problems step by step to find the correct answers.
Problem 1: Giannitti Corporation
Data Given:
- Estimated machine-hours = 36,000 hours
- Estimated variable manufacturing overhead = $3.01 per machine-hour
- Estimated total fixed manufacturing overhead = $1,058,040
Predetermined Overhead Rate Calculation:
The predetermined overhead rate is calculated by adding the total estimated fixed manufacturing overhead and the estimated variable manufacturing overhead. The formula is:
[
\text{Predetermined Overhead Rate} = \frac{\text{Estimated Total Manufacturing Overhead}}{\text{Estimated Machine-Hours}}
]
Where:
- Total Manufacturing Overhead = Fixed Manufacturing Overhead + (Variable Manufacturing Overhead per Machine-Hour × Estimated Machine-Hours)
Substituting the values into the formula:
[
\text{Total Manufacturing Overhead} = 1,058,040 + (3.01 \times 36,000)
]
[
\text{Total Manufacturing Overhead} = 1,058,040 + 108,360 = 1,166,400
]
Now, calculate the predetermined overhead rate:
[
\text{Predetermined Overhead Rate} = \frac{1,166,400}{36,000} = 32.40 \text{ per machine-hour}
]
Correct answer:
- $32.40 per machine-hour
Problem 2: Thach Corporation
Data Given:
- Fixed manufacturing overhead = $665,000
- Variable manufacturing overhead = $3.00 per machine-hour
- Estimated machine-hours = 70,000 hours
- Job T321:
- Number of units in the job = 30
- Total machine-hours for the job = 90 hours
- Direct materials cost = $630
- Direct labor cost = $2,880
Step 1: Calculate the Predetermined Overhead Rate
The formula for the predetermined overhead rate is the same as in the first problem:
[
\text{Predetermined Overhead Rate} = \frac{\text{Fixed Manufacturing Overhead} + (\text{Variable Manufacturing Overhead per Machine-Hour} \times \text{Estimated Machine-Hours})}{\text{Estimated Machine-Hours}}
]
Substituting the given values:
[
\text{Predetermined Overhead Rate} = \frac{665,000 + (3.00 \times 70,000)}{70,000}
]
[
\text{Predetermined Overhead Rate} = \frac{665,000 + 210,000}{70,000} = \frac{875,000}{70,000} = 12.50 \text{ per machine-hour}
]
Step 2: Apply the Overhead to Job T321
To calculate the overhead applied to Job T321, multiply the predetermined overhead rate by the machine-hours for the job:
[
\text{Overhead Applied to Job T321} = 12.50 \times 90 = 1,125
]
Step 3: Calculate the Unit Product Cost for Job T321
Now, calculate the total cost of Job T321. The total cost is the sum of direct materials, direct labor, and applied overhead:
[
\text{Total Cost of Job T321} = 630 + 2,880 + 1,125 = 4,635
]
Now, to find the unit product cost, divide the total cost by the number of units in the job:
[
\text{Unit Product Cost} = \frac{4,635}{30} = 154.50
]
Correct answer:
- $154.50 per unit
Conclusion:
- For Giannitti Corporation, the predetermined overhead rate is $32.40 per machine-hour.
- For Thach Corporation, the unit product cost for Job T321 is $154.50.