Answer:
Primera Company
1. Plantwide predetermined overhead rate:
= $1,536,000/768,000
= $2.00 per direct labor hour
Overhead assigned to each product:
Product 1 Product 2
Direct labor hours 480,000 147,200
Predetermined overhead
rate = $2 per direct labor hour
Total overhead = $960,000 $294,400
2. Predetermined departmental overhead rates:
Department 1:
Direct labor hours $2 ($1,536,000/768,000)
Department 2
Machine hours = $7.385 ($1,536,000/208,000)
Overhead assigned:
Product 1 = $960,000 (480,000 * $2)
Product 2 = $70,896 (9,600 * $7.385)
3. The applied overhead for the year:
Department 1 = $1,254,400 (627,200 * $2)
Department 2 = $1,512,448 (204,800 * $7.385)
Total = $2,766,848
Overapplied overhead for the firm = $1,134,848 ($2,766,848 - $1,632,000)
4. Debit Manufacturing overhead $1,134,848
Credit Cost of goods sold $1,134,848
To transfer the overapplied overhead to cost of goods sold.
Additional information needed if the variance is material is to determine the percentages to allocated to Work in process, Finished Goods, and Cost of Goods Sold.
Explanation:
a) Data and Calculations:
Estimates:
Department 1 Department 2 Total
Direct labor hours 640,000 128,000 768,000
Machine hours 16,000 192,000 208,000
Overhead cost $384,000 $1,152,000 $1,536,000
Actual results:
Department 1 Department 2 Total
Direct labor hours 627,200 134,400 761,600
Machine hours 17,600 204,800 222,400
Overhead cost $400,000 $1,232,000 $1,632,000
Product 1 Product 2 Total
Direct labor hours:
Department 1 480,000 147,200 627,200
Department 2 96,000 38,400 134,400
Machine hours:
Department 1 8,000 9,600 17,600
Department 2 24,800 180,000 204,800
[ where a is a constant]