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Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for the plant is defined as 50,000 machine hours per year, which represents 25,000 units of output. Annual budgeted fixed factory overhead costs are $250,000 and the budgeted variable factory overhead cost rate is $4 per unit. Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 20,000 units, which took 41,000 machine hours. Actual fixed factory overhead costs for the year amounted to $245,000, while the actual variable overhead cost per unit was $3.90.

Based on the information provided above, provide the correct summary journal entries for actual and applied factory overhead costs (both variable and fixed) for the year. Assume that the company uses a single account, Factory Overhead, to record both actual and applied factory overhead. Also, assume that the only variable overhead cost was electricity and that actual fixed overhead consisted of depreciation of $150,000 and supervisory salaries of $95,000. Finally, assume that both electricity expense and the supervisory salaries expense have been incurred but not yet paid (i.e., both are current liabilities). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal Entries

• A

  Record the actual overhead costs.

• B

  Record the overhead costs applied to production.

• C

  Record the factory overhead variances.

• D

  Record the entry to close the variance accounts to cost of goods sold.

• E

• Record the entry to close the variance accounts to Work in process inventory, Finished goods inventory, and Cost of goods sold.

Answer 1

Account	Debit	Credit
Overhead incurred	323,000
Wages payable		95,000
Depreciation expense		150,000
Electricity payable		78,000
(to record actual overhead)
Work in process	280,000
Overhead applied		280,000
(to record applied overhead)
Overhead applied	280,000
Overhead cost variance	43,000
Overhead incurred		323,000
(entry to record variance)
Cost of goods sold	43,000
Overhead cost variance		43,000
(entry to close variances)

Particulars	Amount		Particulars	Amount
Estimated fixed overhead	250,000		Units produced	20000
Divided by	25,000		× rate per unit	14
Rate per unit	10		OH applied	280,000
Add: variable OH per unit	4		OH actual	323,000
Total OH rate per unit	14		OH under applied	43,000