Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 28

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:

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

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 over applied overhead for the firm?
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?