Question

Applying Factory Overhead

Darling Company estimates that total factory overhead costs will be $493,000 for the year. Direct labor hours are estimated to be 29,000.

a. For Darling Company, determine the predetermined factory overhead rate using direct labor hours as the activity base.
$ per direct labor hour

b. During May, Darling Company accumulated 640 hours of direct labor costs on Job 200 and 890 hours on Job 305. Determine the amount of factory overhead applied to Jobs 200 and 305 in May.
$

c. Prepare the journal entry to apply factory overhead to both jobs in May according to the predetermined overhead rate.

Answer 1

a. Calculation of predetermined overhead rate based on labor hours
Estimated labor hours	=	29000
Estimated manufacturing overhead cost	=	$493,000
Pre-determined overhead rate	=	(Estimated manufactured overhead cost ÷ Estimated labor hours)
	=	$493,000	÷	29000
	=	$17	Per labor hour

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b. Calculation of overhead amount applied
Overhead applied to Job 200	=	Actual labor hours x Predetermined overhead rate
	=	640	x	$17
	=	$10,880
Overhead applied to Job 305	=	Actual labor hours x Predetermined overhead rate
	=	890	x	$17
	=	$15,130

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Journal entry to apply factory overhead
	Date	Description	Debit		Credit
1	May 31	Work-in-process	$10,880
		Factory overhead			$10,880
		(To apply overhead to job 200)
2	May 31	Work-in-process	$15,130
		Factory overhead			$15,130
		(To apply overhead to job 305)

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