Stressed Out Inc. has two departments: cutting and finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The cutting department bases its rate on machine-hours, and the finishing department bases its rate on direct labour cost. At the beginning of the year, the company made the following estimates:

DepartmentCutting Finishing Direct labour-hours5,000 21,000

Machine-hours45,000 3,000

Manufacturing overhead cost $382,500 $499,500

Direct labour cost $75,000 $270,000

Required:

1. Calculate the predetermined overhead rate to be used in each department. (10 marks)
2. Assume that the overhead rates that you computed in part (1) are in effect. The job cost sheet for job 509, which was started and completed during the year, showed the following:

Department Cutting Finishing Direct labour-hours6 20

Machine-hours90 4

Materials requisitioned $500 $380

Direct labour cost $85 $250

Calculate the total overhead cost applied to job 509. (8 marks)

3.Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labour cost, rather than using departmental rates? Explain your answer. No computations are necessary. (7 marks)