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: Compute the plantwide

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ILLINOIS CORPORATION ……

Economics Jan 09, 2021

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:

Compute the plantwide predetermined overhead rate and calculate the overhead assigned to each product.
Calculate the predetermined departmental overhead rates and calculate the overhead assigned to each product.
What was the impact of the company using the blanket rate versus departmental rates? Were certain products overcosted or undercosted? Explain.
Compute the applied overhead for the year and the amount of mis-applied overhead for the firm using:

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