Show Me Haw Factory Overhead Rates, Entries, and Account Balance Sundance Solar Company operates two factories. The compa

Show Me Haw Factory Overhead Rates, Entries, and Account Balance Sundance Solar Company operates two factories. The company applies factory overhead to obs on the basis of machine hours kfactory 1-nd o the basis of direct 4bor han i actory 2 Eathuted tactory e ertead ats, d et machine hours are as follows r han Factory 1 Estimated factory overhead cost for fiscal year beginning March 1 Estimated direct labor hours for year Estimated machine hours for year Actual factory overhead costs for March Actual direct labor hours for March Actual machine hours for March a. Determine the factory overhead rate for Factory . 12,900,000 $10,200,000 250,000 12,990,000 10,090,000 610,000 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 le each factory for March Factory i work in Process □ Factory Overhead Factory 2 Werk in Process Factory Overhead d. Determine the balances of the factory overhead accounts for each factory as of March 31,and indicate whether the amounts Credit v Factory 1
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Show Me Haw Factory Overhead Rates, Entries, and Account Balance Sundance Solar Company operates two factories. The company applies factory overhead to obs on the basis of machine hours kfactory 1-nd o the basis of direct 4bor han i actory 2 Eathuted tactory e ertead ats, d et machine hours are as follows r han Factory 1 Estimated factory overhead cost for fiscal year beginning March 1 Estimated direct labor hours for year Estimated machine hours for year Actual factory overhead costs for March Actual direct labor hours for March Actual machine hours for March a. Determine the factory overhead rate for Factory . 12,900,000 $10,200,000 250,000 12,990,000 10,090,000 610,000 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 le each factory for March Factory i work in Process □ Factory Overhead Factory 2 Werk in Process Factory Overhead d. Determine the balances of the factory overhead accounts for each factory as of March 31,and indicate whether the amounts Credit v Factory 1

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Factory Overhead Rate (FOR)

– Factory Overhead Rate is the predetermined overhead rate which is used to apply manufacturing overhead to production department or products or job orders.

– Normally, it is calculated at the beginning of the period.

– It is calculated by dividing the estimated factory overhead cost by an allocation base (or suitable basis).

– Allocation bases may be direct labor hours, direct labor costs, machine hours etc.

Mathematically, FOR is calculated as follows:

Factory Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Allocation Base

Here in the question, allocation base for factory 1 is Machine Hours and factory 2 is direct labor hours.

(a)

Factory Overhead Rate for factory 1 = Estimated factory Overhead Cost for factory 1/ Estimated Machine Hours for factory 1

= 12,900,000 / 600,000 MHs

= $21.50 per machine hour

(b)

Factory Overhead Rate for factory 2 = Estimated factory Overhead Cost for factory 2 / Estimated Direct Labor Hours for factory 2

= 10,200,000 / 250,000 DLHs

= $40.80 per direct labor hour

c)

Factory 1 (Refer note 1) Work in process 13,115,000
Factory Overhead 13,115,000
Factory 2 (refer note 2) Work in process 9,996,000
  Factory Overhead 9,996,000

Note 1 – Calculation of Applied Factory Overhead to production for Factory 1

Factory Overhead Rate (as calculated above) for factory 1 = $21.50 per machine hour

Actual Machine Hours used for March in factory 1= 610,000 MHs

Applied Factory Overhead = Actual Machine Hours Used x Factory Overhead Rate

= 610,000 MHs x $21.50 per MH

= $13,115,000

Note 2 – Calculation of Applied Factory Overhead to production for Factory 2

Factory Overhead Rate (as calculated above) for Factory 2 = $40.80 per direct labor hour

Actual Direct Labor Hours used for March in factory 2= 245,000 DLHs

Applied Factory Overhead = Actual Direct Labor Hours Used x Factory Overhead Rate

= 245,000 DLHs x $40.80 per direct labor hour

= $9,996,000

d)

Factory 1

Applied Factory Overhead = 13,115,000

Estimated Factory Overhead = 12,900,000

Applied Overheads are higher than Estimated Overheads, hence the Overheads are overapplied.

Over-applied Overhead = 13,115,000 – 12,900,000 = 215,000

Factory 2

Applied Factory Overhead = 9,996,000

Estimated Factory Overhead = 10,200,000

Applied Overheads are lesserr than Estimated Overheads, hence the Overheads are under-applied.

Under-applied Overhead = 10,200,000 – 9,996,000 = 204,000

Factory 1 215,000 Credit Over applied
Factory 2 204,000 Debit Under Applied

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