The controller has asked you to distribute and record factory overhead to the va
ID: 2585298 • Letter: T
Question
The controller has asked you to distribute and record factory overhead to the various production orders that are processed during a year.
The following information was taken from the annual budget:
Direct labor hours
84,000
Machine hours
120,000
Manufacturing costs:
Direct labor
$525,000
Direct materials
180,000
Indirect labor
75,000
Electric power
48,000
Payroll taxes
12,600
Machine maintenance and repair
9,200
Factory supplies
16,000
Factory heat and light
14,000
Depreciation, taxes, and insurance:
Factory buildings
135,000
Machinery
320,200
$1,335,000
Actual results for the year follow:
Direct labor hours
85,000
Machine hours
110,000
Manufacturing costs:
Direct labor
$ 540,000
Direct material
200,000
Factory overhead
625,000
$1,365,000
Required:
a.
Determine the factory overhead application rate under the direct labor hour method (show calculations).
b.
Determine the under- or over-applied factory overhead (show calculations).
c.
Prepare the entries to record the following:
1. The liability for total factory overhead.
2. Application of factory overhead to work in process, using direct labor hours.
3. Close the applied factory overhead account.
4. Record under- or over-applied factory overhead and close actual factory overhead.
5. Close the under- or over-applied factory overhead assuming the balance is immaterial.
The controller has asked you to distribute and record factory overhead to the various production orders that are processed during a year.
The following information was taken from the annual budget:
Direct labor hours
84,000
Machine hours
120,000
Manufacturing costs:
Direct labor
$525,000
Direct materials
180,000
Indirect labor
75,000
Electric power
48,000
Payroll taxes
12,600
Machine maintenance and repair
9,200
Factory supplies
16,000
Factory heat and light
14,000
Depreciation, taxes, and insurance:
Factory buildings
135,000
Machinery
320,200
$1,335,000
Actual results for the year follow:
Direct labor hours
85,000
Machine hours
110,000
Manufacturing costs:
Direct labor
$ 540,000
Direct material
200,000
Factory overhead
625,000
$1,365,000
Required:
a.
Determine the factory overhead application rate under the direct labor hour method (show calculations).
b.
Determine the under- or over-applied factory overhead (show calculations).
c.
Prepare the entries to record the following:
1. The liability for total factory overhead.
2. Application of factory overhead to work in process, using direct labor hours.
3. Close the applied factory overhead account.
the payroll taxes pertain to direct labor
Direct labor hours
84,000
Machine hours
120,000
Manufacturing costs:
Direct labor
$525,000
Direct materials
180,000
Indirect labor
75,000
Electric power
48,000
Payroll taxes
12,600
Machine maintenance and repair
9,200
Factory supplies
16,000
Factory heat and light
14,000
Depreciation, taxes, and insurance:
Factory buildings
135,000
Machinery
320,200
$1,335,000
Explanation / Answer
A) The factory overhead application rate under the direct labor hour method
Applied Overhead
Direct Labor Hour Rate = Total Overheads = (Direct Labor+Direct material +Factory Overhead)
Total Labor Hours Total Labor Hours
= $ 1,335,000
84,000 Hrs
=$ 15.89/Hr
Actual Overhead
Direct Labor Hour Rate = Total Overheads = (Direct Labor+Direct material +Factory Overhead)
Total Labor Hours Total Labor Hours
= $ 1,365,000
85,000 Hrs
=$ 16.06/Hr
B) The under- or over-applied factory overhead
Applied Overhead: $ 1,335,000
Actual Overhead: $ 1,365,000
Actual Overhead exceeds the Applied Overhead by ($ 1,365,000 - $ 1,335,000) = $ 30,000
Therefore, Under applied factory overhead is $ 30,000
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