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? $

Feedback

1. The total annual driver level is a factor in this calculation.

2. For departmental rates, OH rates are assigned to each production department either per machine hrs. or direct labor hrs.

3. Calculate over- or underapplied by subtracting Applied OH from Actual OH. Label it over or under.

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