nstructions Sundance Solar Company operates two factories. The company applies f

Question

nstructions Sundance Solar Company operates two factories. 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 $1,504,500 $914,400 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 25,400 50,150 $121,580 $107.200 2,930 4,100 Required: a. Determine the factory overhead rate for Factory 1 b. Determine the factory overhead rate for Factory 2 c. Journalize the Mar. 31 entries to apply factory overhead to production in each factory. Refer to the chart of accounts for the exact wording of the account titles d. Determine the balances of the factory overhead accounts for each factory as of March 31, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead

Explanation / Answer

Factory 1 overhead rate : based on machine hours

Factory 2 overhead rate : based on labor hours

a) Factory 1 overhead rate = Estimated factory overhead / Estimated machine hours = $1,504,500 / 50,150 = $30 per machine hour

b) Factory 2 overhead rate = Estimated factory overhead / Estimated labor hours = $914,400 / 25,400 = $36 per labor hour

c) The above rates would be applied to the actual hours in the books -

Factory Overhead

Factory overhead

I think you multiplied machine hours with the Factory 2 rate instead of labor hours.

d) Factory 1

More amount is applied (overapplied) in books than actual, so we will have a credit balance.

Factory 1 credit balance = $123000 - $121580 = $1,420

Factory 2

Less amount is applied (underapplied) in books than actual, so we will have a debit balance.

Factory 2 debit balance = $107200 - $105480 = $1720

Journal Date Description Debit Credit Factory 1 Mar 31 Work in Process ($30 x 4100) $123,000

Factory Overhead

$123,000 Factory 2 Mar 31 Work in Process ($36 x 2930) $105,480

Factory overhead

$105,480

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