Question

Factory Overhead Rates and Account Balance

Prostheses Industries operates two factories. The manufacturing operations of Factory 1 are machine intensive, while the manufacturing operations of Factory 2 are labor intensive. 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	$1,135,740		$520,800
Estimated direct labor hours for year				8,400
Estimated machine hours for year		24,690
Actual factory overhead costs for August		$91,000		$45,240
Actual direct labor hours for August				760
Actual machine hours for August		1,930

a. Determine the factory overhead rate for Factory 1. Round your answer to the nearest cent.
$ per machine hour

b. Determine the factory overhead rate for Factory 2. Round your answer to the nearest cent.
$ per direct labor hour

c. Determine the factory overhead applied to production in each factory for January.

Factory 1	$
Factory 2	$

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

Factory 1	$
Factory 2	$

e. Explain why Factory 1 uses machine hours to allocate factory overhead while Factory 2 uses direct labor hours.
Factory overhead should be allocated using a base that is related to (causes) the overhead costs incurred. Factory 1 has a manufacturing operation, and Factory 2 has a manufacturing operation. Thus, Factory 1 uses machine hours, and Factory 2 uses direct labor hours to allocate factory overhead.

Answer 1

Solution:

Part a & b -- factory overhead rate for Factory 1 and Factory 2

	Factory 1	Factory 2
Estimated Factory Overhead Cost for the Year (A)	$1,135,740	$520,800
Allocation Base	Machine Hours	Direct Labor Hours
Estimated Allocation Base (B)	24,690 MHs	8,400 DLHs
Factory Overhead Rate (A/B)	$46 per MH	$62 per DLH

Part c -- factory overhead applied to production in each factory for January

	Actual Usage	Factory Overhead Rate	Applied Factory Overhead
	(A)	(B)	(A*B)
Factory 1	1930 Machine Hours	$46 per MH	$88,780
Factory 2	760 Direct Labor Hours	$62 per DLH	$47,120

Part d -- balances of the factory accounts for each factory as of January 31, and indicate whether the amounts represent overapplied or underapplied factory overhead

	Applied Factory Overhead (From Part c)	Actual Factory Overhead Incurred	Over or Under Applied Factory Overhead
Factory 1	$88,780	$91,000	$2,220	Under Applied
Factory 2	$47,120	$45,240	$1,880	Over Applied

Note --- Applied Overhead for Factory 1 is lesser than actual factory overhead, it means the overheads are Under Applied.

Applied Overhead for Factory 2 is higher than actual overhead, it means overheads are over applied.

Part e --- you already have

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.