Answered Essay: Tiny Biggs Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on t

Tiny Biggs 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 September 1 $1,337,500 $847,000
Estimated direct labor hours for year 24,200
Estimated machine hours for year 53,500
Actual factory overhead costs for September $108,410 $96,900
Actual direct labor hours for September 2,720
Actual machine hours for September 4,400

Required:

A. Determine the factory overhead rate for Factory 1.
B. Determine the factory overhead rate for Factory 2.
C. Journalize the Sep. 30 entries to apply factory overhead to production in each factory for September. Refer to the Chart of Accounts for exact wording of account titles.
Determine the balances of the factory overhead accounts for each factory as of September 30, and indicate whether the amounts represent overapplied factory overheadD. The amount of factory overhead applied in excess of the actual factory overhead costs incurred for production during a period.

or underapplied factory overheadThe amount of actual factory overhead in excess of the factory overhead applied to production during a period.

A. Determine the factory overhead rate for Factory 1.

per machine hour

Points:

B. Determine the factory overhead rate for Factory 2.

per direct labor hour

.C. Journalize the Sep. 30 entry to apply factory overhead to production in Factory 1 for September. Refer to the Chart of Accounts for exact wording of account titles. Scroll down to record the entry for Factory 2.

D. Determine the balances of the factory overhead accounts for each factory as of September 30, and indicate whether the amounts represent overapplied factory overhead

The amount of factory overhead applied in excess of the actual factory overhead costs incurred for production during a period.

or underapplied factory overhead

The amount of actual factory overhead in excess of the factory overhead applied to production during a period.

.

Factory 1 selector 1credit or Debit selector 2underapplied or overapplied
Factory 2 selector 3credit or debit selector 4underapplied or overapplied

Expert Answer

 

Factory 1 Factory 2
1 Estimated Overhead costs                         13,37,500                     8,47,000
2 Estimated Direct Labour Hours                         24,200
3 Estimated Machine Hours                               53,500
4 Overhead Rate ( $ per hour)                                       25                                 35
( $ 1,337,500/ 53,500) ( $ 847,000/ 24,200)
Journal entry
Date Account’s tittle Debit $ Credit $
Factory 1
Factory Overhead Costs                           1,08,410
Cash                     1,08,410
( To be record actual overhead cost incurred)
Work-in process (4,400 hours x $ 25 per hour)                           1,10,000
Factory Overhead costs                     1,10,000
(Factory overhead cost applied to production based on estimation)
Factory 2
Factory Overhead Costs                               96,900
Cash                         96,900
( To be record actual overhead cost incurred)
Work-in process (2,720 hours x $ 35 per hour )                               95,200
Factory Overhead costs                         95,200
(Factory overhead cost applied to production based on estimation)
In Factory 1,
Applied overhead costs are more than actual overhead costs. Excess applied overhead over and above actual overhead cost is termed as ‘Overapplied’
Therefore, Ovehead account shall be debited.
In Factory 2,
Actual overhead costs are more than applied overhead costs. Excess actual overhead over and above applied overhead cost is termed as ‘Underapplied’
Therefore, Ovehead account shall be credited.
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