Factory Overhead Rates Entries and Account Balance Sundance

Factory Overhead Rates, Entries, and Account Balance Sundance Solar Company operates two factories. The company applies factory overheed 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 1Factory 2 Estimated factory overhead cost for fiscal year beginning March 1 Estimated direct labor hours for year Estimated machine hours for year Actual factory overheed costs for March Actual direct labor hours for March Actual machine hours for March a. Determine the factory overhead rate for Factory 1. 834,120 $716,800 12,800 19,860 $66,730 $61,820 1,150 1,550 ??per machine hour b. Determine the factory overhead rate for Factory per direct labor hour c. Journalize the entries to apply factory overhead to production in each factory for March. Factory 1

Solution

Factory overhead rate for Factory 1 = Estimated Factory Overheads for the year/Estimated Machine Hours

=834,120/19860

=42 per machine hour

Factory overhead rate for Factory 2 = Estimated Factory Overhead Cost/Estimated Labour Hours

=716,800/12800

=56 per Labour hour

Journal

Factory 1 : Work in progress 65,100

                      Factory Overheads 65,100

Factory Overheads = Actual Hours*Recovery Rate

= 1550*42 = 65,100

Factory 2 : Work in progress 64,400

                      Factory Overheads 64,400

Factory Overheads = Actual Hours*Recovery Rate

= 1150*56 = 64,400

D. Balances

Actual – Recovered/Charged

Factory 1 : 66730- 65100 = 1630 Underapplied

Factory 2: 61,820-64,400 = 2,580 Overapplied