Question

1. Company produces a product that passes through two departments: Department 1 and Department 2. Test Company determines product cost using a normal cost system. The company applies overhead using departmental overhead rates. Overhead in Department 1 is applied based on machine hours. Overhead in Department 2 is applied based on direct labor hours. The company prepared the following estimates at the beginning of the year.

   	Department 1	Department 2	Total
   Prime cost	$375,000	$700,000	$1,075,000
   Overhead cost	$420,000	$240,000	$660,000
   Direct labor hours	16,000	50,000	66,000
   Machine hours	100,000	20,000	120,000

   During the year, Company reported the following actual results.

   	Department 1	Department 2	Total
   Prime cost	$475,000	$850,000	$1,325,000
   Overhead cost	$450,000	$300,000	$750,000
   Direct labor hours	20,000	60,000	80,000
   Machine hours	125,000	25,000	150,000

   Calculate the predetermined overhead rate Company uses to apply overhead in Department 1.

   		$4.20 per machine hour
   		$3.60 per machine hour
   		$26.25 per direct labor hour
   		$6.60 per machine hour

QUESTION 6

THE FOLLOWING INFORMATION IS USED FOR QUESTIONS 5 – 9.

Company produces a product that passes through two departments: Department 1 and Department 2. Company determines product cost using a normal cost system. The company applies overhead using departmental overhead rates. Overhead in Department 1 is applied based on machine hours. Overhead in Department 2 is applied based on direct labor hours. The company prepared the following estimates at the beginning of the year.

	Department 1	Department 2	Total
Prime cost	$375,000	$700,000	$1,075,000
Overhead cost	$420,000	$240,000	$660,000
Direct labor hours	16,000	50,000	66,000
Machine hours	100,000	20,000	120,000

During the year, Company reported the following actual results.

	Department 1	Department 2	Total
Prime cost	$475,000	$850,000	$1,325,000
Overhead cost	$450,000	$300,000	$750,000
Direct labor hours	20,000	60,000	80,000
Machine hours	125,000	25,000	150,000

Calculate the overhead applied to production in Department 1 for the year.

QUESTION 7

1. THE FOLLOWING INFORMATION IS USED FOR QUESTIONS 5 – 9.

   Test Company produces a product that passes through two departments: Department 1 and Department 2. Test Company determines product cost using a normal cost system. The company applies overhead using departmental overhead rates. Overhead in Department 1 is applied based on machine hours. Overhead in Department 2 is applied based on direct labor hours. The company prepared the following estimates at the beginning of the year.

   	Department 1	Department 2	Total
   Prime cost	$375,000	$700,000	$1,075,000
   Overhead cost	$420,000	$240,000	$660,000
   Direct labor hours	16,000	50,000	66,000
   Machine hours	100,000	20,000	120,000

   During the year, Test Company reported the following actual results.

   	Department 1	Department 2	Total
   Prime cost	$475,000	$850,000	$1,325,000
   Overhead cost	$450,000	$300,000	$750,000
   Direct labor hours	20,000	60,000	80,000
   Machine hours	125,000	25,000	150,000

   Calculate the predetermined overhead rate Test Company uses to apply overhead in Department 2.

   		$12.00 per machine hour
   		$4.80 per direct labor hour
   		$13.20 per direct labor hour
   		$5.00 per direct labor hour

QUESTION 8

Test Company produces a product that passes through two departments: Department 1 and Department 2. Test Company determines product cost using a normal cost system. The company applies overhead using departmental overhead rates. Overhead in Department 1 is applied based on machine hours. Overhead in Department 2 is applied based on direct labor hours. The company prepared the following estimates at the beginning of the year.

	Department 1	Department 2	Total
Prime cost	$375,000	$700,000	$1,075,000
Overhead cost	$420,000	$240,000	$660,000
Direct labor hours	16,000	50,000	66,000
Machine hours	100,000	20,000	120,000

During the year, Test Company reported the following actual results.

	Department 1	Department 2	Total
Prime cost	$475,000	$850,000	$1,325,000
Overhead cost	$450,000	$300,000	$750,000
Direct labor hours	20,000	60,000	80,000
Machine hours	125,000	25,000	150,000

Calculate the overhead applied to production in Department 2 for the year.

QUESTION 9

Test Company produces a product that passes through two departments: Department 1 and Department 2. Test Company determines product cost using a normal cost system. The company applies overhead using departmental overhead rates. Overhead in Department 1 is applied based on machine hours. Overhead in Department 2 is applied based on direct labor hours. The company prepared the following estimates at the beginning of the year.

#9Calculate the total overhead variance for the year.

Answer 1

1)correct option is "A" -

predetermined overhead rate Company uses to apply overhead in Department 1 =Estimated overhead /estimated machine hours

       = 420000 /100000

       = $ 4.2 per MH

2) overhead applied to production in Department 1 for the year =Actual Machine hours *predetermined overhead rate

        = 125000 * 4.2

        = 525000

3)correct option is "B"- $4.80 per direct labor hour

predetermined overhead rate Company uses to apply overhead in Department 2 =Estimated overhead /estimated Direct labor hours

       =240000/50000

       = $ 4.8 per MH

4) overhead applied to production in Department 2 for the year. =Actual hours *overhead rate

                = 60000*4.8

               = $ 288000