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Muhammad Farid - Assignment 2

McCawl Company produces two products using two departments and is considering changing from a plantwide overhead rate to departmental rates. [1] The plantwide predetermined overhead rate is $2 per direct labor hour. Using this rate, overhead assigned to Products A and B is $720,000 and $232,000 respectively. [2] Department 1's rate is $0.60 per direct labor hour and Department 2's is $6 per machine hour. Using these rates, overhead assigned to Products A and B is $300,000 and $655,200 respectively. [3] Total actual overhead for the year is $1,020,000 while applied overhead using departmental rates

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61 views2 pages

Muhammad Farid - Assignment 2

McCawl Company produces two products using two departments and is considering changing from a plantwide overhead rate to departmental rates. [1] The plantwide predetermined overhead rate is $2 per direct labor hour. Using this rate, overhead assigned to Products A and B is $720,000 and $232,000 respectively. [2] Department 1's rate is $0.60 per direct labor hour and Department 2's is $6 per machine hour. Using these rates, overhead assigned to Products A and B is $300,000 and $655,200 respectively. [3] Total actual overhead for the year is $1,020,000 while applied overhead using departmental rates

Uploaded by

Farid Chanchad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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McCawl Company produces two products and uses a predetermined overhead rate to apply overhead.

McCawl 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 $ 400,000 $ 80,000
Machine hours $ 40,000 $ 120,000
Overhead cost $ 240,000 $ 720,000

Actual results reported by department and product during the year as a follow :

  Department 1 Department 2
Direct labor hours $ 392,000 $ 84,000
Machine hours $ 44,000 $ 128,000
Overhead cost $ 250,000 $ 770,000

  Product A Product B
Direct labor hours :
Department 1 $ 300,000 $ 92,000
Department 2 $ 60,000 $ 24,000
Machine hours :
Department 1 $ 24,000 $ 28,000
Department 2 $ 20,000 $ 100,000

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. Using departmental rates, compute the applied overhead for the year. What is the under- or
overapplied 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. If the variance is material, what additional information would
you need to make the appropriate journal entry?
Answer :

1) Plantwide predetermined overhead rate = Overhead Cost/Direct Labor Hours

Plantwide predetermined overhead rate


$ 2.00 Per direct labor hours
=($240,000 + $720,000)/(400,000 + 80,000)

  Product A Product B
Direct Labor Hours = 300,000 + 60,000 $ 360,000  
Direct Labor Hours = 92,000 + 24,000   $ 116,000
Plantwide predetermined overhead rate $ 2.00 $ 2.00
Overhead Assigned $ 720,000 $ 232,000
     
2)    
Department 1 = $240,000/400,000 DLH = $ 0.60 per direct labor hour
Department 2 = $720,000/120,000 MH = $ 6.00 per machine hour
Product A -- ($0.60 × 300,000) + ($6.00 ×
$ 300,000  
20,000) =
Product B -- ($0.60 × 92,000) + ($6.00 ×
$ 655,200  
100,000) =
     
3)    
Total applied overhead (300,000 + 655,200) $ 955,200.00  
Total actual overhead ($250,000 + $770,000) $ 1,020,000.00  
Under applied (difference) $ 64,800.00  
     
4)    
Account Titles Debit Credit
Cost of Goods Sold $ 64,800.00  
Overhead Control   $ 64,800.00

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