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 $368,600 $999,600 Estimated direct labor hours for year 14,700 Estimated machine hours for year 18,430 Actual factory overhead costs for March $29,520 $86,170 Actual direct labor hours for March 1,320 Actual machine hours for March 1,440 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

Answer 1

a.

Factory overhead rate for factory 1 = Estimated factory overhead cost / Estimated machine hours

= 368,600/18,430

= $20 per machine hour

b.

Factory overhead rate for factory 2 = Estimated factory overhead cost / Estimated direct labor hours

= 999,600/ 14,700

= $68 per direct labor hour

c.

Overhead applied to factory 1 = Actual machine hours x Factory overhead rate for factory 1

= 1,440 x 20

= $28,800

Overhead applied to factory 2 = Actual direct labor hours x Factory overhead rate for factory 2

= 1,320 x 68

= $89,760

Factory	General journal	Debit	Credit
Factory 1	Work in process inventory	$28,800
	Factory overhead		$28,800
Factory 2	Work in process inventory	$89,760
	Factory overhead		$89,760

d.

Under applied factory overhead in factory 1 = Actual factory overhead in factory 1 - Overhead applied to factory 1

= 29,520-28,800

= $720

Over applied factory overhead in factory 2 = Overhead applied to factory 2- Actual factory overhead in factory 2

= 89,760-86,170

= $3,590

Factory 1	$720	Under applied factory overhead
Factory 2	$3,590	Over applied factory overhead

Kindly comment if you need further assistance. Thanks