Question

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	$1,442,000	$912,600
Estimated direct labor hours for year		25,350
Estimated machine hours for year	51,500
Actual factory overhead costs for March	$115,110	$103,210
Actual direct labor hours for March		2,820
Actual machine hours for March	4,160

Required:

	a. Determine the factory overhead rate for Factory 1.
	b. Determine the factory overhead rate for Factory 2.
	c. Journalize the Mar. 31 entries to apply factory overhead to production in each factory. Refer to the chart of accounts for the exact wording of the account titles.
	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.

Answer 1

a) Factory overhead rate for factory 1 = 1442000/51500 = 28 per MH

b) Factory overhead rate for factory 2 = 912600/25350 = 36 per DLH

c) Journal entry

No	General Journal	Debit	Credit
a	Work in process-Factory 1 (4160*28)	116480
	Factory overhead		116480
b	Work in process-Factory 2 (2820*36)	101520
	Factory overhead		101520

d) Calculate following

	Applied overhead	actual overhead	Balance
Factory 1	116480	115110	1370 Over applied
Factory 2	101520	103210	1690 under applied