White Company has two departments, Cutting and Finishing.

The company uses a job-order costing system and computes a predetermined overhead rate for each department. The Cutting Department bases its rate on machine-hours and the Finishing Department bases its rate on direct labor-hours.

At the beginning of the year, the company made the following estimates:

Department

Cutting Finishing

Direct labor-hours 7,700 43,000

Machine-hours 43,400 1,900

Total fixed manufacturing overhead cost $390,000 $496,000

Variable manufacturing overhead per machine-hour $2.00

Variable manufacturing overhead per direct labor-hour $3.75

Compute the predetermined overhead rate for each department.

Cutting = $10.99 per machine hour

Finishing = $15.28 per direct labour hours.

Explanation:

The question requests the predetermined overhead rate for Cutting department and Finishing department

Step 1: What is the formula for the pre-determined overhead rate

For the Cutting Department

Predetermined Overhead rate = The total fixed manufacturing Overhead / Total Machine Hours + Variable Manufacturing Overhead rate per machine hour.

= $390,000/$43,400) + $2

= $10.99 per machine hour

For the Finishing Department

Predetermined Overhead rate = The total fixed manufacturing Overhead / Total Labour Hours + Variable Manufacturing Overhead rate per machine hour.

= $496,000/43,000) + $3.75

= $15.28 per direct labour hours.