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	$348,200		$591,600
Estimated direct labor hours for year				8,700
Estimated machine hours for year		17,410
Actual factory overhead costs for March		$27,880		$50,920
Actual direct labor hours for March				780
Actual machine hours for March		1,360

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

Solution:

(a): Determination of factory overhead rate for Factory:1 –

Formula:

Factory overhead rate =Estimated factory overhead cost / Estimated machine hours for year

=$3,48,200 / 17,410

= $20

Therefore factory overhead rate fotr factory 1 = $20

(b) : Determination of factory overhead rate for Factory:2 –

Formula:

Factory overhead rate =Estimated factory overhead cost / Estimated machine hours for year

=$5,91,600 /8,700

=$68

Therefore factory overhead rate fotr factory 2 = $68

(c) : preparation of journal entry to apply factory over head to production in each factory -

(4) : Determination of the balances of factory overhead accounts and indicating whether amounts are over applied or under applied -