Question

Factory Overhead Rates, Entries, and Account Balance

Eclipse 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 August 1	$810,550		$672,800
Estimated direct labor hours for year				11,600
Estimated machine hours for year		18,850
Actual factory overhead costs for August		$64,790		$57,910
Actual direct labor hours for August				1,040
Actual machine hours for August		1,470

. Journalize the entries to apply factory overhead to production in each factory for August. If an amount box does not require an entry, leave it blank.

Factory 1	Work in Process
	Factory Overhead
Factory 2	Work in Process
	Factory Overhead

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

Answer 1

Factory 1 overhead rate = estimated total factory overhead costs / estimated machine hours =810550/18850 = $43 per machine hour

Factory 2 overhead rate = estimated total factory overhead costs / estimated direct labor hours = 672800/11600 = $58 per direct labor hour

Part 1

	Account titles and explanation	Debit	Credit
Factory 1	Work in Process (43*1470)	63210
	Factory Overhead		63210
Factory 2	Work in Process (58*1040)	60320
	Factory Overhead		60320

Part 2

Factory 1	$1580	Debit	underapplied
Factory 2	$2410	Credit	overapplied

Factory 1 = actual overhead - overhead applied = 64790-63210 = 1580

Factory 2 = actual overhead – overhead applied = 57910-60320 = -2410