Question

Cavy Company estimates that total factory overhead costs will be $660,000 for the year. Direct labor hours are estimated to be 100,000.Required:Determine (a) the predetermined factory overhead rate; (b) the amount of factory overhead applied to Job 345 if the amount of direct labor hours is 560 and Job 777 if the amount of direct labor hours is 800; and (c) prepare the journal entry to apply factory overhead for April according to the predetermined overhead rate. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Answer:

(A) $6.6

(B)  $3,696, $5,280

(C) Work in Progress A/c Dr $8,976

         To Factory overhead A/c $8,976

(Being the factory overhead applied)

Explanation:

(A) The formula to compute the predetermined factory overhead rate is shown below:

Predetermined factory overhead rate = (Total estimated factory overhead) ÷ (estimated direct labor-hours)

= $660,000 ÷ 100,000 hours

= $6.6

(B) The amount of factory overhead for each job is shown below:

For Job 345 = Actual direct labor-hours × predetermined factory overhead rate

                    = 560 hours × $6.6

                    = $3,696

For Job 777 = Actual direct labor-hours × predetermined factory overhead rate

                    = 800 hours × $6.6

                    = $5,280

(C) The journal entry is shown below:

Work in Progress A/c Dr $8,976

         To Factory overhead A/c $8,976

(Being the factory overhead applied)

The computation is shown below:

= Applied factory overhead for Job 345 +  Applied factory overhead for Job 777

= $3,696 + $5,280

= $8,976