CHAPTER 7 - ACCOUNTING FOR FACTORY OVERHEAD

Problem 1 Denmark Company

FO rate = 216,000
216,000
216,000
216,000
90,000
72,000 units 1,600 MHrs.
240,000
249%of DMC P3.00/unit
Problem 2 - Colossal Corporation
FO rate = 207,000
207,000
500,000
52,100 units
41,40%of DMC

P3,97/unit

P135/MHr.

P3.00/MHr

= 16,000 Hrs. x P4.50

P 4.50/DLHr.

P 72,000
P 69,000
72,000
( P 3,000)

Problem 4 - Ellery Corporation

1.
Job 123
Direct labor cost
600
FO rate
180%
Applied FO
1,080
Job 123
DM
300
DL
600
FO
1,080
TOTAL 1,980

207,000
765,000

P2.44/DLHr. 27.06%ofDLC

3. Actual FO
Less: Applied
Overapplied FO

2.

90% of DLC P4.50/DLHr.

207,000
207,000
69,000 MHrs. 85,000 DLHrs.

Problem 3 Manila Company

1. FO rate = P67,500/15,000 DLHrs.
2. Applied FO

216,000
48,000 DLHrs/

Job 124
1,080
940
1,692
3,712

Job 124
940
180%
1,692

Job 125
1,400
180%
2,520

Job 126
5,120
180%
9,216

Job 125
720
1,400
2,520
4,640

Job 126
4,200
5,120
9,216
18,536

TOTAL
6,300
8,060
14,508
28,868

Problem 5 Thermal Corporation

1. Direct method
P1___
P2___
Direct cost
P 90,000
P 60,000
Allocated cost
S1
10,000
10,000
S2
20,000
12,000
Total
P120,000
P 82,000
Base
50,000 MHrs.
20,000 DLHrs
FO rate
P 2.40/MHr.
P 4.10/DLHr.

S1___
P 20,000

S2___
P 32,000

( 20,000)
( 32.000)

2. Step method
Direct cost
Allocated cost
S1
S2
Total
Base
FO rate

P1___
P 90,000

P2___
P 60,000

2,000
30,000
P122,000
50,000 MHrs.
P 2.44/MHr

2,000
18,000
P 80,000
20,000 DLHrs
P 4.00/DLHr.

S1____
P 20,000

S2___
P 32,000

( 20,000)

16,000
( 48,000)

3. Algebraic method
Direct cost
Allocated
S1
S2
Total
Base
FO rate

P1___
P 90,000

P2___
P 60,000

S1___
P 20,000

S2____
P 32,000

3.143
28,572
P121,715
50,000 MHrs.
P 2.43/MHr.

3,143
17,143
P80,286
20,000 DLHrs
P 4.0/DLHr.

( 31,429)
11,429

25,143
( 57,143)

S1 -= 20,000 + 20% S2
S2 = 32,000 + 80% S1
S1
S1 - .16S1
S1

S2

=
=
=
=
=

20000 + 20%( 32,000 + 80% S1)

20,000 + 6,400 + .16 S1
26.400
26,400/.84
31,429

= 32,000 + 80% 31,429

= 32,000 + 25,143
= 57,143

Problem 6 ABC Company

1. Direct method
Machinery
Direct cost
P 52,500
Allocated cost
S1
5,600
S2
6,325
Total
P 64,625
Base
1,500DLHrs.
FO rate
P 42.95DLHr.

Assembly
P 48,000

Repair___
P 14,000

8,400
4,675
P 61,075
1,250 DLHrs
P48.86/DLHr.

( 14,000)

Cafeteria
P 11,000

( 11.000)

2. Step method
Machinery
P 52,500

Direct cost
Allocated cost
S1
S2
Total
Base
FO rate

4,119
8,455
P 65,074
1,500 DLHrs.
P 43.38/DLHr

Assembly
P 48,000

Repair
P 14,000

Cafeteria
P 11,000

6,176
6,250
P 60,426
1,250 DLHrs
P48.34/DLHr.

( 14,000)

3,705
( 14,705)

Problem 7 - Central Parkway Corp.

Direct cost
Allocated
S1
S2
Total
S1
S2
S1
S1 - .025 S1
S1

S2

P1___
120,000

P2____
80,000

13,333
8,333
141,666

6,667
6,667
93,334

S1___
25,000
( 26,667)
1,667

=
=

25,000 + 10% of S2
10,000 + 25% of S1

=
=
=
=
=

25,000 + 10% ( 10,000 + .25S1

25,000 + 1,000 + .025S1
26,000
26,000/.975
26,667

=
=

10,000 + .25(26,667)
16,667

Problem 8 Megastar Company

Fixed
Variable

1.

Total
34,200
41,800
76,000

95,000 Mach. Hrs.

Per Mach.Hr.
0.36
( 34,200/95,000)
0.44
( 41,800/95,000)
0.80

Actual factory overhead

Less: Applied (100,000 x .80)
Overapplied factory overhead

P 78,600
80,000
( 1,400)

S2___
10,000
6,667
(16,667)

2.

3.

Actual factory overhead

Less: Budget allowed on actual hours
Fixed
34,200
Variable (100,000 x .44)
44,000
Spending variance unfavorable

P 78,600

Budged allowed on actual hours

Less: Applied factory overhead
Idge capacity variance favorable

P 78,200
80,000
( 1,800)

78,200
400

Problem 9 - Abner Company

Fixed
Variable
Total

72,000 units
Per unit
P 0.47
(33,840/72,000)
4.20
(72,000 x 4.20)
P 4.67

TotalP 33,840
302400
P336,200

1.

Actual FO
Less: Applied FO 5,400 units x P 4.67
Underapplied FO

P 15,910
25,218
(P 9.308)

2.

Actual FO
P 15,910
Less: Budget allowed on actual hours
Fixed (33,840/12 months)
2,820
Variable ( 5,400 x 4.20)
22,680
25,500
Spending variance favorable
( P 9,590)

3.

Budged allowed on actual hours

Less: Applied
Idle capacity variance unfavorable

P25,500
25,218
P 282

Problem 10 - Norman Corporation

1.
Variable rate/hour = 270,000 252,000
60,000 - 48,000
= P1.50/DLHr.
2.
Total
Less: Variable
(60,000 x 1.50)
(48,000 x 1.50)
Fixed

High
270,000

Low
252,000

90,000
_______
180,000

72,000
180,000

2.

Actual factory overhead

Less: Applied ( 60,000 x 90%) x 5.25
Overapplied FO
FO rate =

3.

252,000
48,000

= 5.25/ DLHrs.

Actual factory overhead

Less: Budget allowed on actual hours
Fixed
Variable (54,000 x 1.50)
Spending variance

4.

273,000
283,500
( 10,500)

273,000
180,000
81,000

Budget allowed on actual hours

Less: Applied
Idle capacity variance

261,000
283,500
( 22,500)

Problem 11 Strawberry Corporation

Actual factory overhead
Less: Applied factory overhead
Overapplied factory overhead favorable
a.

30,500
39,700
( 9,200)

Allocation of overapplied factory overhead

Cost of goods sold
Finished goods inventory
Work in process inventory

b.

261,000
12,000

32,000/39,700 x 9,200 = 7,416

4,200/39,700 x 9,200 =
973
3,500/39,700 x 9,200 =
811
39,700
9,200

Applied factory overhead

Cost of goods sold
Finished goods inventory
Work in process inventory
Factory overhead control

Problem 12
a)
Direct materials ( 50 x P120)
Direct labor
Factory overhead (100 x P 25)
Total manufacturing cost
No. of units
Cost per unit

Product A
P 6,000
(100 x P120)
1,000
2,500
(300 x P 25)
P 9,500
50
P
190/unit

39,700
7,416
973
811
30,500

Product B
P 12,000
3,000
7,500
P 22,500
100
P
225/unit

Factory overhead rate = P200,750/8,030 direct labor ours = P 25/DLHr.

b)
Direct materials (50 x P120)
Direct labor
Factory overhead
Material handling (40 x P50)
Scheduling & setup (7 x 200)
Design section (5 x P 107.50)
No. of parts (10 x 100)
Total costs
No. of units
Cost per unit

TRUE/FALSE
1. True
2. False
3. True
4. True
5. True

6.
7.
8.
9.
10.

Product A
P 6,000
1,000
2,000
1,400
537,50
1,000
P 11,937.50
50
P 238.75/unit

(100 x P120)

(20 x P50)
( 5 x 200)
( 3 x 107.50)
(6 x 100)

True
True
True
False
True

11.
12.
13.
14.
15.

Product B
P 12,000
3,000
1,000
1.000
322.50
600
P 17,922.50
100
P 179.23/unit

False
False
True
True
True

MULTIPLE CHOICE THEORY

1.
c
6.
d
2.
c
7.
c
3.
d
8.
a
4.
b
9.
d
5.
d
10.
a
MULTIPLE CHOICE - PROBLEMS
1.
c
11.
d
2.
d
12.
d
3.
c
13.
d
4.
d
14.
a
5.
c
15.
b
6.
c
16.
c
7.
c
17.
c
8.
c
18.
c
9.
c
19.
b
10.
a
20.
a

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

A
A
b
c
d
a
b
c
C
163,706

31. d
32. c

for No. 25 allocation under step method must be in the following order
1. Building occupancy
2. Supervision
3. Equipment maintenance