Question

Factory Overhead Rates, Entries, and Account Balance

Sundance Solar Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows:

		Factory 1		Factory 2
Estimated factory overhead cost for fiscal
	year beginning March 1	$661,080		$897,600
Estimated direct labor hours for year				13,600
Estimated machine hours for year		23,610
Actual factory overhead costs for March		$52,810		$77,300
Actual direct labor hours for March				1,220
Actual machine hours for March		1,840

a. Determine the factory overhead rate for Factory 1.
$ per machine hour

b. Determine the factory overhead rate for Factory 2.
$ per direct labor hour

c. Journalize the entries to apply factory overhead to production in each factory for March.

Factory 1
Factory 2

d. Determine the balances of the factory overhead accounts for each factory as of March 31, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.

Factory 1	$
Factory 2	$

Answer 1

a. Determine the factory overhead rate for Factory 1.
$661080/23610 = 28 per machine hour

b. Determine the factory overhead rate for Factory 2.
$897600/13600 = 66 per direct labor hour

c. Journalize the entries to apply factory overhead to production in each factory for March.

Factory 1	Work in process (1840*28)	51520
	Factory overhead		51520
Factory 2	Work in process (1220*66)	80520
	Factory overhead		80520

d. Determine the balances of the factory overhead accounts for each factory as of March 31, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.

Factory 1	$51520-52810	= 1290 Under applied
Factory 2	$80520-77300	=3220 Over applied