Predetermined Overhead Rates, Overhead Variances, Unit Costs
Primera Company produces two products and uses a predeterminedoverhead rate to apply overhead. Primera currently applies overheadusing a plantwide rate based on direct labor hours. Considerationis being given to the use of departmental overhead rates whereoverhead would be applied on the basis of direct labor hours inDepartment 1 and on the basis of machine hours in Department 2. Atthe beginning of the year, the following estimates areprovided:
| 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 theyear 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 overheadrate.
$ per direct labor hour
Calculate the overhead assigned to each product.
2. Calculate the predetermined departmentaloverhead rates. If required, round your answers to the nearestcent.
| Department 1 | $ per direct labor hour |
| Department 2 | $ per machine hour |
Calculate the overhead assigned to each product.
3. Using departmental rates, compute theapplied overhead for the year.
$
What is the under- or overapplied overhead for the firm?
$
4. Prepare the journal entry that disposes ofthe overhead variance calculated in Requirement 3, assuming it isnot material in amount.
