Question

1. 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	$530,640		$774,700
   Estimated direct labor hours for year				12,700
   Estimated machine hours for year		24,120
   Actual factory overhead costs for March		$42,390		$66,760
   Actual direct labor hours for March				1,140
   Actual machine hours for March		1,880

   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 March.

   Factory 1
   Factory 2

   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	$
   Factory 2	$

Answer 1

(a)-The factory overhead rate for Factory 1.

Factory overhead rate for Factory 1 = $530,640 / 24,120 Machine hours

= $22.00 per machine hour

(b)-The factory overhead rate for Factory 2

Factory overhead rate for Factory 2 = $774,700 / 12,700 direct labor hours

= $61.00 per direct labor hour

(c)-Journal entries to apply factory overhead to production in each factory for March.

Transaction	General Journal	Debit ($)	Credit ($)
Factory-1	Work-in-process [1,880 x $22.00 per MH]	41,360
	Factory Overhead		41,360
Factory-2	Work-in-process [1,140 x $61.00 per DLH]	69,540
	Factory Overhead		69,540

(d)-Overapplied factory overhead or underapplied factory overhead.

Under-applied factory overhead for Factory-1

Under-applied factory overhead for Factory-1 = $41,360 - $42,390

= $1,030 Under-applied

Overapplied factory overhead for Factory-2

Overapplied factory overhead for Factory-2 = $69,540 - $66,760

= $2,780 Over-applied