Question

Predetermined Overhead Rates, Overhead Variances, Unit Costs

Primera Company produces two products and uses a predetermined overhead rate to apply overhead. Primera currently applies overhead using a plantwide rate based on direct labor hours. Consideration is being given to the use of departmental overhead rates where overhead would be applied on the basis of direct labor hours in Department 1 and on the basis of machine hours in Department 2. At the beginning of the year, the following estimates are provided:

	Department 1		Department 2
Direct labor hours	640,000		128,000
Machine hours	16,000		192,000
Overhead cost	$384,000		$1,152,000

Actual results reported by department and product during the year are as follows:

	Department 1		Department 2
Direct labor hours	627,200		134,400
Machine hours	17,600		204,800
Overhead cost	$400,000		$1,232,000

	Product 1		Product 2
Direct labor hours
Department 1	480,000		147,200
Department 2	96,000		38,400
Machine hours
Department 1	8,000		9,600
Department 2	24,800		180,000

Required:

1. Compute the plantwide predetermined overhead rate.
$ ___per direct labor hour

Calculate the overhead assigned to each product.

Product 1	$___
Product 2	$___

2. Calculate the predetermined departmental overhead rates. If required, round your answers to the nearest cent.

Department 1	$ __per direct labor hour
Department 2	$ __per machine hour

Calculate the overhead assigned to each product.

Product 1	$__
Product 2	$__

3. Using departmental rates, compute the applied overhead for the year.
$___

What is the under- or overapplied overhead for the firm?
$ ____underapplied

4. Prepare the journal entry that disposes of the overhead variance calculated in Requirement 3, assuming it is not material in amount.

	Cost of Goods Sold		___
	Overhead Control		___

Answer 1

1. Computation of Plantewide Overhead Rate
Particular	Department 1	Department 2
Overhead Cost (A)	$384,000.00	$1,152,000.00
Direct Labor Hours (B)	640000	128000
Plantewide Overhead Rate (A/B)	0.6	9
Computation of Overhead Assigned to product.
	Product 1	Product 2
Department-1
Direct Labor Hours	480000	147200
Plantewide Overhead Rate ( as Calculated Above)	0.6	0.6
Allocated Cost for Department -1 (A)	$288,000.00	$88,320.00
Department-2
Direct Labor Hours	96000	38400
Plant wide Overhead Rate ( as Calculated Above)	9	9
Allocated Cost for Department -2 (B)	$864,000.00	$345,600.00
Total Product Cost (A+B)	$1,152,000.00	$433,920.00

2. Computation of Predetermined Overhead Rate
Particular	Department 1	Department 2
Overhead Cost (A)	$384,000.00	$1,152,000.00
Direct Labor Hours (B)	640000
Machine Hours (B)		192000
Predetermined Overhead Rate (A/B)	0.6	6
Computation of Overhead Assigned to product.
	Product 1	Product 2
Department-1
Direct Labor Hours	480000	147200
Predetermined Overhead Rate (as Calculated above)	0.6	0.6
Allocated Cost - Department -1	$288,000.00	$88,320.00
Department -2
Machine Hours	24800	180000
Predetermined Overhead Rate	6	6
Allocated Cost - Department -2	$148,800.00	$1,080,000.00
Total Product Cost	$436,800.00	$1,168,320.00
3. Computation of Department Overhead Rate
Particular	Product 1	Product 2
Applied Product Cost (A)	$436,800.00	$1,168,320.00
Actual Product Cost (B)	$400,000.00	$1,232,000.00
Under Applied		$63,680.00
Overapplied	$36,800.00
4. Journal Entry
Account Tittle	Debit	Credit
Manufacturing Overheads	$36,800.00
Finished Goods		$36,800.00
( For Product-1)
Finished Goods	$63,680.00
Manufacturing Overheads		$63,680.00
( For Product-2)

Answer 2

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