EX 19-9 Factory overhead rates, entries, and account balance

Almer 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
Estimated factory overhead cost for fiscal
year beginning July 1 $1,008,000 $861,000
Estimated direct labor hours for year 21,000
Estimated machine hours for year 42,000
Actual factory overhead costs for July $74,480 $77,500
Actual direct labor hours for July 2,000
Actual machine hours for July 3,050



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 July.

d. Determine the balances of the factory overhead accounts for each factory as of July 31, and indicate whether the amounts represent overapplied or underapplied factory overhead.


Answer:

a. Factory 1: $24.00 per machine hour ($1,008,000 ÷ 42,000 machine hours)
b. Factory 2: $41.00 per direct labor hour ($861,000 ÷ 21,000 direct labor hours)
c. Factory 1:
Work in Process 73,200
Factory Overhead 73,200
($24.00 × 3,050).
Factory 2:
Work in Process 82,000
Factory Overhead 82,000
($41.00 × 2,000).
d. Factory 1—$1,280 debit (underapplied) ($74,480 – $73,200)
Factory 2—$4,500 credit (overapplied) ($77,500 – $82,000)