Question

Please help!!!

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. The 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.

Answer 1

a) Estimated annual overhead cost Estimated annual direct labor hours Pre-determined overhead rate per direct labor hour $630,000 (Ref: NOTE] 84,000 $7.5 ($630000 / 84000 d.labor hours) $75,000 $48,000 $12,600 $9,200 $16,000 $14,000 b) NOTE: Indirect labor Electric power Payroll taxes Machine maintenance and repair Factory supplies Factory heat and light Depreciation, taxes, and insurance: Factory buildings Machinery Estimated total overhead costs Pre-determined overhead rate per direct labor hour $7.5 [As calculated in Part-1] Actual direct labor hours worked 85,000 Overhead cost applied during the year $637,500 (85000 direct labor hours x $7.5] Actual Mfg. overhead costs incurred $625,000 Over-applied manufacturing overhead cost $12,500 [Difference between $625000 & $637500] (It is over-applied as mfg. overhead applied to work in process is more than actual mfg. overhead incurred) $135,000 $320,200 $630,000 2) Event General Journal Debit Credit 1) Factory Overhead $625,000 Accounts Payable $625,000 (To record liability for total factory overhead) Work in Process Inventory $637,500 [85000 direct labor hours x $7.5] Applied Factory Overhead $637,500 (To record factory overhead applied) 3) Applied Factory overhead $637,500 Factory Overhead $637,500 (To close applied factory overhead account)

4) Journal entry to close over-applied overhead (assuming the over-applied overhead is material): Account titles Factory overhead Work in Process Inventory Debit $12,500 Credit [Work in process is debited as current cost of goods sold would be reported short due to under-applied mfg. OH] $12,500 [Mfg. overhead is credited as current mfg. overhead applied would show debit balance due to under-applied mfg. OH] 5) Journal entry to close over-applied overhead to cost of goods sold (assuming the over-applied overhead is immaterial): Account titles Factory overhead Cost of Goods Sold Debit $12,500 Credit [Cost of goods sold is debited as current cost of goods sold would be reported short due to under-applied mfg. OH] $12,500 [Mfg. overhead is credited as current mfg. overhead applied would show debit balance due to under-applied mfg. OH]