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ILLINOIS CORPORATION   ……

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ILLINOIS CORPORATION

 

……..  produces two products and uses a predetermined overhead rate to apply overhead. The company 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

 

 

The following actual results by department and product were reported at year end:

 

 

			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 A		Product B
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. What was the impact of the company using the blanket rate versus departmental rates?  Were certain products overcosted or undercosted?  Explain.
4. Compute the applied overhead for the year and the amount of mis-applied overhead for the firm using: