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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

Factory overhead rates, entries and account balance

Sundance Solar Company operates two lactones. The company applies factory overhead to jobs oil 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
Estimated factory overhead cost for fiscal year beginning March 1 $12,900.000 $10,200,000
Estimated direct labor hours for year   250,000
Estimated machine hours for year 600,000  
Actual factory overhead costs for March $1 2,990,000 $10,090,000
Actual direct labor hours for March   245,000
Actual machine hours for March 610,000  

a. Determine the factory overhead rate for Factory 1.

b. Determine the factory overhead rate for Factory 2.

c. Journalize the entries to apply factory overhead to production in each factory for March.

d. Determine the balances of the factory overhead accounts for each factory as of March 31 and indicate whether the amounts represent over- or underapplied factory overhead.

(a)

To determine

Factory overhead

It includes all manufacturing costs except direct material cost and direct labor cost. Factory overhead cost includes all costs like indirect materials, indirect labor, factory power and factory depreciation.

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 factory overhead rate for Factory 1.

Explanation

The factory overhead rate for factory 1 is calculated as follows:

Factory overhead rate = Estimated total factory overhead costsEstimated machine hours=$12

(b)

To determine
the factory overhead rate for Factory 2.

(c)

To determine

To record: Journal entry the factory overhead applied in the books of T Industries.

(d)

To determine
the balance of factory overhead accounts for each factory as of March 31 & indicate under or over-applied factory overhead.

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