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	$435,600		$889,000
Estimated direct labor hours for year				12,700
Estimated machine hours for year		21,780
Actual factory overhead costs for August		$34,850		$76,610
Actual direct labor hours for August				1,140
Actual machine hours for August		1,700

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

c. Journalize the entries to apply factory overhead to production in each factory for August. If an amount box does not require an entry, leave it blank.

Factory 1	Work in Process
	Factory Overhead
Factory 2	Work in Process
	Factory Overhead

d. Determine the balances of the factory overhead accounts for each factory as of August 31, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.

Factory. 1	$.	Debit	Underapplied
Factory 2	$	Credit	Overapplied

Answer 1

a. Determine the factory overhead rate for Factory 1.
$435,600 / 21,780 = 20 per machine hour

b. Determine the factory overhead rate for Factory 2.
$889,000 / 12,700 = 70 per direct labor hour

c. Journalize the entries to apply factory overhead to production in each factory for August. If an amount box does not require an entry, leave it blank.

Factory 1	Work in process (1700*20)	34,000
	Factory overhead		34,000
Factory 2	Work in process (1140*70)	79,800
	Factory overhead		79,800

d. Determine the balances of the factory overhead accounts for each factory as of August 31, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.

Factory 1	$34,000 - 34,850 = 850	Debit	Under applied
Factory 2	$79,800 - 76,610 = 3,190	Credit	Over applied