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 and calculate the overhead assigned to

each product.

2. Calculate the predetermined departmental overhead rates and calculate the overhead

assigned to each product.

3. Using departmental rates, compute the applied overhead for the year. What is the under- or

overapplied overhead for thefirm?

4. Prepare the journal entry that disposes of the overhead variance calculated in Requirement

3, assuming it is not material in amount. What additional information would you need if

the variance is material to make the appropriate journal entry?