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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 | $12,900,000 | $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
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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 |
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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 |
Expert Answer
a. Factory overhead rate for Factory 1 = Estimated factory overhead cost / Estimated machine hours for year
= $12900000 / 600000 = $21.50
b. Factory overhead rate for Factory 1 = Estimated factory overhead cost / Estimated direct labor hours for year
= $10200000 / 250000 = $40.80
c. Journal
| No. | Account Name | Debit | Credit |
| 1. | Work in process (610000 x $21.50) | $13115000 | |
| Factory overhead | $13115000 | ||
| 2. | Work in process (245000 x $40.80) | $9996000 | |
| Factory overhead | $9996000 |
d. Factory 1 = $12,990,000 – $13,115,000 = $125000 Credit Overapplied
Factory 1 = $10,090,000 – $9,996,000 = $94000 Debit Underapplied
