The Watts Company Uses Predetermined Overhead Rates to Apply Manufacturing

question 58

Multiple Choice

The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labour cost in Department A and on machine hours in Department B.At the beginning of the year,the company made the following estimates: $\begin{array}{|l|r|r|}\hline & \text { Department A } & \text { Department B } \\\hline \text { Direct labour cost } & \$ 30,000 & \$ 40,000 \\\hline \text { Manufacturing overhead } & \$ 60,000 & \$ 50,000 \\\hline \text { Direct labour hours } & 6,000 & 8,000 \\\hline \text { Machine hours } & 2,000 & 10,000 \\\hline\end{array}$ What predetermined overhead rates would be used in Departments A and B,respectively?

• A) 50% and $8.00.
• B) 50% and $5.00.
• C) 110% and $15.00.
• D) 200% and $5.00. Dept. A = $60,000/$30,000 = 200% Dept. B = $50,000/10,000m. hrs = $5/m. hr.

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Definitions:

Sales Commissions

Sales commissions are financial incentives given to sales employees based on the volume of sales they generate.

Item Sold

A product or service that has been purchased by a customer, contributing to a company's sales revenue.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and represent a significant portion of the production cost.

Per-unit Cost

The cost associated with producing or acquiring one unit of a product or service.