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Cutting absorbs overhead at $155 per direct labour hour and Assembly at $236 per direct labour hour. Job 1 uses 135 hours in Cutting and 75 hours in Assembly. What overhead is applied to Job 1?
A$38,625
B$38,220
C$20,925
D$44,100
Answer & Solution
Correct answer: A. $38,625
1. Under departmental rates each department's hours are costed at that department's own rate.
2. Cutting: 135 direct labour hours times $155 per hour gives $20,925.
3. Assembly: 75 direct labour hours times $236 per hour gives $17,700.
4. Adding the two departments gives $20,925 plus $17,700, which is $38,625.
5. $38,220 is the Job 1 total under the single factory wide rate of $182 per hour.
6. $20,925 is only the Cutting half of the job, so it stops before Assembly is charged.
7. $44,100 comes from costing all 210 hours at the higher Assembly rate, which ignores the split.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.3 Departmental Rates to Estimate Factory Overhead_
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