Factory Overhead Rates and Account Balance Prostheses Industries operates two fa

Question

Factory Overhead Rates and Account Balance Prostheses Industries operates two factories. The manufacturing operations of Factory 1 are machine intensive, while the manufacturing operations of Factory 2 are labor intensive. 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 352,170 699,60 10,600 year beginning August1 Estimated direct labor hours for year Estimated machine hours for year Actual factory overhead costs for August Actual direct labor hours for August Actual machine hours for August a. Determine the factory overhead rate for Factory 1. Round your answer to the nearest cent. 16,770 $28,200 $60,190 950 1,310 per machine hour b. Determine the factory overhead rate for Factory 2. Round your answer to the nearest cent. per direct labor hour

Explanation / Answer

a) Factory overhead rate for factory 1 = 352170/16770 = 21 per machine hour

b) Factory overhead rate for factory 2 = 699600/10600 = 66 per labour hour

c) Calculate overhead applied :

Factory 1 = 1310*21 = 27510

Factory 2 = 950*66 = 62700

d) Calculate over and under applied overhead

Factory 1 = 27510-28200 = 690 Under applied

Factory 2 = 62700-60190 = 2510 Over applied

e) Factory overhad should be allocated using a base that is related to (cause) the overhead cost incurred. Factoy 1 has a maching intensive manufacturing operations, and factory 2 has a labour intensive manufacturing operation.Thus Factory 1 uses maching hours and factory 2 uses direct labour hours to allocate factory overhead.

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