Eisentrout Corporation has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining 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:

Machining Customizing
Machine-hours 13,000 29,000
Direct labor-hours 19,000 5,000
Total fixed manufacturing overhead cost $ 68,900 $ 20,500
Variable manufacturing overhead per machine-hour $ 1.00
Variable manufacturing overhead per direct labor-hour $ 4.20

The Machining Department’s predetermined overhead rate is based on machine-hours and the Customizing Department’s predetermined overhead rate is based on direct labor-hours.

Machine-hours:

Machining= 13,000

Customizing= 29,000

Direct labor-hours:

Machining= 19,000

Customizing= 5,000

Total fixed manufacturing overhead cost

Machining = $68,900

Customizing= $20,500

Variable manufacturing overhead per machine-hour $ 1.00

Variable manufacturing overhead per direct labor-hour $ 4.20

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machining:

Estimated manufacturing overhead rate= (68,900/13,000) + 1= $6.3 per machine hour

Customizing:

Estimated manufacturing overhead rate= (20,500/5,000) + 4.2= $8.3 per direct labor hour