Primera Company produces two products and uses a predetermined overhead rate t

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 640000 128000

Machine hours 16000 192000

Overhead cost $384000 $1152000

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

Department 1 Department 2

Direct labor hours 627200 134400

Machine hours 17600 204800

Overhead cost $400000 $1232000

Product 1 Product 2

Direct labor hours:

Department 1 480000 147200

Department 2 96000 38400

Machine hours:

Department 1 8000 9600

Department 2 24800 180000

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?