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 $18,500,000 $10,200,000
Estimated direct labor hours for year 250,000
Estimated machine hours for year 600,000
Actual factory overhead costs for March $12,990,000 $10,090,000
Actual direct labor hours for March 245,000
Actual machine hours for March 610,000
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
c. Journalize the entries to apply factory overhead to production in each factory for March.
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 March 31,and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.
Factory 1 $ Credit Overapplied
Factory 2 $ Debit Underapplied

Answer 1

Answer and Explanation:

The computation is shown below:-

a. Factory overhead rate for Factory 1 = Estimated factory overhead cost ÷ Estimated machine hours for year

= $18,500,000 ÷ 600,000

= $30.83

b. Factory overhead rate for Factory 2 = Estimated factory overhead cost ÷ Estimated direct labor hours for year

= $10,200,000 ÷ 600,000

= $40.80

c. The journal entry is shown below:-

1. Work in process Dr, $13,115,000 (610,000 × $21.50)

               To Factory overhead $13,115,000

(Being the factory overhead is recorded)

2. Work in process Dr, $9,996,000 (245000 × $40.80)

                 To Factory overhead $9,996,000

(Being the factory overhead is recorded)

d. For Factory 1

= $12,990,000 - $13,115,000

= $125,000 Credit Overapplied

For Factory 2

= $10,090,000 - $9,996,000

= $94,000 Debit Underapplied