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Factory overhead Rates, Entries, and account Balance. Sundance solar company operates two factories. The company supplies factory overhead to jobs on the basis of machine hours in factory. 1 and basis of direct labor hours in factory 2. Estimated factory overhead costs, direct labor hours, machine hours are as follows: Determine the factory overhead rate for Factory 1. $ per machine hour b. Determine the factory overhead rate for factory 2. $ per direct labor hour c. Journalize the entries to apply factory overhead to production is each factory for March. d. Determine the balance of the factory overhead accounts for each factory as March 31, and indicate whether the represent overhead or under applied factory overhead.
Expert Answer
a. Factory overhead rate for Factory 1 = estimated factory overhead/estimated machine hours
= 12,900,000/600,000
= $21.50 per machine hour
b. Factory overhead rate for Factory 2 = estimated factory overhead/estimated direct labor hours
= 10,200,000/250,000
= $40.80 per direct labor hour
c. Journal entry for factory 1:
Predetermined rate = $21.50 per machine hour. Actual machine hours = 610,000. Thus applied overhead = $21.50*61,000 = $13,115,000
Journal entry would be:
| Particulars | Debit | Credit | |
| Work in process | $13,115,000 | ||
| Factory overhead | $13,115,000 | ||
Factory 2: overhead applied = $40.80 per direct labor hour*245,000 actual hours = $9,996,000
Thus journal entry would be:
| Particulars | Debit | Credit | |
| Work in process | $9,996,000 | ||
| Factory overhead | $9,996,000 | ||
d. Factory 1: actual overheads = 12,990,000. Applied overhead = 13,115,000. Thus applied overhead is greater than actual overhead and so overhead is overapplied. There will be credit balance.
Balance amount for factory 1 = 13,115,000-12,990,000 = $125,000
Factory 2: actuals = 10,000,000. Applied overhead = 9,996,000. Thus applied overhead is less than actual and so overhead is underapplied. There will be a debit balance.
Balance amount = 10,000,000-9,996,000 = $4,000
| Factory 1 | $ | 125,000.00 | Overapplied |
| Factory 2 | $ | 4,000.00 | Underapplied |
