Question

The chief cost accountant for Kenner Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning May 1 would be $130,000 and total direct labor costs would be $100,000. During May, the actual direct labor cost totaled $12,500 and factory overhead cost incurred totaled $16,750.

Required:

A.	What is the predetermined factory overhead rate based on direct labor cost?
B.	On May 31, journalize the entry to apply factory overhead to production. Refer to the Chart of Accounts for exact wording of account titles.
C.	What is the May 31 balance of the account Factory Overhead-Blending Department?
D.	Does the balance in part C represent over- or underapplied factory overhead?

Answer 1

A.

Estimated factory overhead cost = $130,000

Direct labor cost = $100,000

Predetermined overhead cost = Estimated factory overhead cost/ Direct labor cost

= 130,000/100,000

= 130% of direct labor cost

B.

Actual direct labor cost = $12,500

Factory overhead applied = Actual direct labor cost x Predetermined overhead cost

= 12,500 x 130%

= $16,250

Date	General Journal	Debit	Credit
May 31	Work in process inventory	$16,250
	Factory overhead		$16,250
	( To record factory overhead applied)

C.

Actual factory overhead = $16,750

Factory overhead applied = $16,250

Under applied factory overhead = Actual factory overhead - Factory overhead applied

= 16,750-16,250

= $500

The May 31 balance of the account Factory Overhead-Blending Department = $500

D.

Balance in factory overhead account represents under applied factory overhead.