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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Applying factory overhead

Bergan Company estimates that total factory overhead costs will be $620,000 for the year. Direct labor hours are estimated to be 80,000. For Bergan Company, (a) determine the predetermined factory overhead rate using direct labor hours as the activity base, (b) determine the amount of factory overhead applied to Jobs 200 and 305 in May using the data on direct labor hours from Practice Exercise 19-2A, and (c) prepare the journal entry to apply factory overhead to both jobs in May according to the predetermined overhead rate.

a)

To determine

Predetermined factory overhead rate

Normally, factory overhead costs are applied or allocated to cost of job based on predetermined factory overhead rate. The formula to calculate the predetermined factory overhead rate is as follows:

Predetermined factory overhead rate = Estimated total factory overhead costsEstimated activity rate

To determine: the predetermined factory overhead rate of Company B.

Explanation

The predetermined factory overhead rate is calculated as follows:

Predetermined factory overhead rate = Estimated total factory overhead costsEstimated direct labor hours=$<

(b)

To determine

Applied factory overhead

The company applies factory overhead using predetermined factory overhead rate. The factory overhead applied is recorded in each job sheet which consists of direct labor hour and predetermined overhead rate.

To determine: the amount of factory overhead applied to Jobs 200 and 305 in May.

(c)

To determine

To record: Journal entry the factory overhead applied in the books of Company B.

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