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	$556,660		$768,800
Estimated direct labor hours for year				12,400
Estimated machine hours for year		21,410
Actual factory overhead costs for August		$44,510		$66,660
Actual direct labor hours for August				1,120
Actual machine hours for August		1,670

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

Feedback

a-b. Factory 1 overhead is applied based on machine hours. Factory 2 overhead is applied based on direct labor hours.

c. 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

Feedback

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.

Factory 1	$	Debit	Underapplied
Factory 2	$	Credit	Overapplied

Answer 1

Ans:

1. Factory overhead rate for Factory 1= Estimated total factory overhead costs/Estimated Machine hours

=> 556,660/21,410

=> $26 per Machine hour

2. Factory Overhead for Factory 2= Estimated total factory overhead costs/Estimated Direct labor hours

=> 768,800/12,400

=> $62 per Direct labor hour

3. Journal Entry

Part	Account title and explanation	Debit($)	Credit($)
Factory 1	Work in Process{26*1,670}	43,420
	Factory Overhead		43,420
	{to record Factory overhead to production for factory 1}
Factory 2	Work in Process{62*1,120}	69,440
	Factory Overhead		69,440
	{ to record Factory Overhead to production for factory 2}

4.

Factory 1= Overhead applied- Actual Applied

=> 43,420-44,510

=> 1,090{ Under applied}

Factory 2= Overhead applied- Actual Applied

=> 69,440-66,660

=> 2,780 {Over applied}