Question

The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning February 1 would be $130,000, and total direct labor costs would be $100,000. During February, the actual direct labor cost totaled $12,500, and factory overhead cost incurred totaled $16,750.

Required:

a.	What is the predetermined factory overhead rate based on direct labor cost?
b.	Journalize the entry to apply factory overhead to production for February 28. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for spaces or journal explanations. Every line on a journal page is used for debit or credit entries. Do not add explanations or skip a line between journal entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.
c.	What is the February 28 balance of the account Factory Overhead-Blending Department?
d.	Does the balance in part (c) represent over- or underapplied factory overhead?

CHART OF ACCOUNTS
River Rock Beverage Co.
General Ledger
ASSETS 110 Cash 121 Accounts Receivable 125 Notes Receivable 126 Interest Receivable 131 Materials 141 Work in Process-Blending Department 142 Work in Process-Filling Department 151 Factory Overhead-Blending Department 152 Factory Overhead-Filling Department 161 Finished Goods 171 Supplies 172 Prepaid Insurance 173 Prepaid Expenses 181 Land 191 Factory 192 Accumulated Depreciation-Factory LIABILITIES 210 Accounts Payable 221 Utilities Payable 231 Notes Payable 236 Interest Payable 251 Wages Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Wages Expense 531 Selling Expenses 532 Insurance Expense 533 Utilities Expense 534 Supplies Expense 540 Administrative Expenses 561 Depreciation Expense-Factory 590 Miscellaneous Expense 710 Interest Expense

a. What is the predetermined factory overhead rate based on direct labor cost?

%

b. Journalize the entry to apply factory overhead to production for February 28. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for spaces or journal explanations. Every line on a journal page is used for debit or credit entries. Do not add explanations or skip a line between journal entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2

c. What is the February 28 balance of the account Factory Overhead-Blending Department?

Amount:
Debit or credit?

d. Does the balance in part (C) represent over- or underapplied factory overhead?

Answer 1

Budgeted Cost
Total Factory OH	130000
Direct Labour Cost	100000
Actual Cost
Total Factory OH	12500
Direct Labour Cost	16750
a. Predetermiend Rate = Factory OH Cost / Direct Laboru Cost = 130000/ 100000 = 1.3 times per Direct labour hour rate.
Rate is 1.3 Direct Labour rate per Hour
b.	Accounting Description	Ledger No	Debit	Credit
	Factory Overhead-Blending Department A/c Dr.	151
	To Wages Expenses	520
	To Insurance Expenses A/c	532
	To Utilities Expenses A/c	533
	To Supplies Expenses A/c	534
	To Depreciation Expenses - Factory A/c	561
	( Being various factory OH)
	Above Expenses charged to Fatory oH
	Accounting Description	Ledger No	Debit	Credit
	Work in Process-Blending Department A/c Dr.	141	16750
	To Factory Overhead-Blending Department A/c	151		16750
	( Being Factory OH charged )
c.	Otherwise, Balance of Factory OH is 16750
	The Balance is Debit Balance
d.	Actual Labour Cost = 12500
	as per Predetermined rate it is 1.3 of Direct Labour Cost
	Hence, 12500 X 1.3 = 16250
	Actual Factory OH = 16750
	Hence, It is Under - Applied.
	As the Factory oH is showing the Debit Balance
	Accounting Description	Debit	Credit
	COGS	500
	Manufacturig OH		500