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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Problem 1Q

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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