CHAPTER 7:
Accounting for Factory
Overhead
PROBLEMS
Problem 1The Denmark Company estimates its factory overhead for the next period at 500, 000. It is estimated that 10, 000 units will be produced at a materials cost of 400, 000 and will require 25, 000 direct labor hours at an estimated cost of 250, 000. The machines will run about 80, 000 hours. Required: The predetermined factory overhead rate based on:
1. Material cost
2. Units of production 3. Machine hours 4. Direct labor cost 5. Direct labor hours
Answer:
1. 500 000/400 000 x 100 = 125% of direct materials cost 2. 500 000/10 000 = 50/unit
3. 500 000/80 000 = 6.25/machine hours
4. 500 000/250 000 x 100 = 2% of direct labor cost 5. 500 000/25 000= 20/direct labor hours
Problem 2
The Marco Company budgeted overhead at P 255, 000 for the period for Department A, on the basis of a budgeted volume of P 100, 000 direct labor hours. At the end of the period, the Factory Overhead Control account for Department A had a balance of P 270, 000; actual direct labor hours were P 105, 000
Required:
1. Compute for the overhead application rate 2. Compute for the applied factory overhead
3. Compute for the over or under-applied overhead
Answer:
2. Applied Factory Overhead = 105,000 x P 2.55 = P 267, 750
3. Factory Overhead Control (actual) P 270,000 Less: Applied Factory Overhead 267,750 Underapplied Overhead P 2,250
Problem 3
Marvin Company’s estimated factory overhead for the year was P 456, 120 and the actual overhead was P 470, 800. Machine hours were used in determining the factory overhead application rate. There were P 84, 500 actual machines and P 81, 450 estimated machine hours during the year.
Required:
A. Prepare journal entries to record the following 1. The applied factory overhead
2. The actual factory overhead
3. The closing of the applied overhead account and actual factory account.
B. Assume the following amounts of applied factory overhead in each account.
Cost of goods sold 350 000 Finished goods inventory-end 100 000 Work in process inventory-end 23 200
Allocate the over or under-applied factory overhead to these three accounts.
Answer:
A. 1. Work in Process 473,200
Factory Overhead Applied 473,200* *84, 000 x 5.60 = 473, 200
2. FO Control 470,800
Miscellaneous Accounts 470,800 3. Factory Overhead Applied 473,200
Cost of Goods Sold 2,400 Factory Overhead Control 470,800
B. Cost of goods sold 350,000/473,200 x 2,400= 1,775 Finished goods 100,000/473,200 x 2,400 =
Work in process 23,200/473,200 x 2,400 = 118
Problem 4
The Ellery Corporation uses the job order cost system of accounting. Shown below is a list of the jobs completed during the month of March showing the charges for materials requisitioned and for direct labor cost.
Job Material Cost Direct Labor 123 300 600
124 1 080 940
125 720 1 400
126 4 200 5 120
Required:
Assuming that factory overhead is applied on the basis of direct labor costs and that the predetermined rate is 180% compute:
1. The amount of overhead to be added to the cost of each job completed 2. The total cost of each job completed during the month.
Answer:
1. Job 123 Job 124 Job 125 Job 126
DL cost 600 940 1,400 5,120 FOH rate 180% 180% 180% 180% Applied FOH 1,080 1,692 2,520 9,216
2. Job 123 Job 124 Job 125 Job 126 TOTAL DM 300 1,080 720 4,200 6,300 DL 600 940 1,400 5,120 8,060 FO 1,080 1,692 2,520 9,216 14,508 TOTAL 1,980 3,712 4,640 18,536 28,868 Problem 5
Thermal Corporation has two producing department and two service departments labeled. P1, P2, S1, and S2, respectively. Direct costs for
each department and the proportion of services costs used by various departments are as follows:
Cost Direct Proportion of services used by: Center Costs S1 S2 P1 P2 P1 90 000
P2 60 000
S1 20 000 .80 .10 .10 S2 32 000 .20 .50 .30
In calculating predetermined overhead rates, machine hours are used as the base in P1 and direct labor hours as the base in P2.
P1 P2
Machine hours 50 000 40 000
Direct labor hours 40 000 20 000 Requirements:
1. Allocate the service department costs to operating departments and compute the factory overhead rate for P1 and P2 using the following methods:
A. Direct Method
B. Step method – start with S1 C. Algebraic Method
2. Assume the company uses just one basis for applying overhead to jobs going through both P1 and P2, compute the overhead rate using direct labor hours as base.
Answer: 1. A. P1 P2 S1 S2 Direct Cost 90 000 60 000 20 000 32 000 Allocated FOH: S1 10 000 10 000 (20 000) S2 20 000 12 000 32 000 Total FOH 120 000 82 000 Base 50 000/mhrs 20 000/dlhrs FOH Rate 2.4/mhrs 4.1/dlhrs B. Direct Cost 90 000 60 000 20 000 32 000 Allocated FOH: S1 2 000 2 000 (20 000) 16 000
S2 30 000 18 000 (48 000) Total FOH 122 000 80 000 Base 50 000/mhrs 20 000/dlhrs FOH Rate 2.44/mhrs 4/dlhrs C. Direct Cost 90 000 60 000 20 000 32 000 Allocated FOH: S1 3 143 3 143 31 429 25 143 S2 28 572 17 143 (11 429) (57 143) Total FOH 121 715 82 286 Base 50 000/mhrs 20 000/dlhrs FOH Rate 2.43/mhrs 4.01/dlhrs S1 = 20,000 + 20% S2 S2 = 32,000 + 80% S1 S1 = 20000 + 20 %( 32,000 + 80% S1) = 20,000 + 6,400 + .16 S1 S1 - .16S1 = 26.400 S1 = 26,400/.84 = 31,429 S2 = 32,000 + 80% 31,429 = 32,000 + 25,143 = 57,143 Problem 6
The ABC Company has two service departments and two producing departments
Service Departments’ to costs:
Department 1 – Repair P 14,000 Department 2 – cafeteria 11,000 Producing Departments’ Factory OH Costs
Department A – Machinery 52,500 Department B – Assembly 48,000 Additional Information:
Department Square Feet Est. Direct Labor hours Repair 1,500 3,500 Cafeteria 1,800 1,200 Machinery 2,000 2,300 Assembly 3,000 1,700 Total 8,300 8,700
The costs of the Repair Department are allocated on the basis of square feet. The costs of the cafeteria Department are allocated on the basis of estimated direct labor hours. The producing departments use estimated direct labor hours: 1,500 in Department A and 1,250 in Department B. Required: Allocate the total costs of the service departments to the producing departments (compute the departments’ factory rate) by using the following:
1. Direct method
2. Step method - start with the repair Department
Answer:
1. Direct Method
Machinery Assembly Repair Cafeteria Direct cost P 52,500 P 48,000 P 14,000 P 11,000 Allocated cost: Repair 5,600* 8,400** ( 14,000) Cafeteria 6,325*** 4,675**** ( 11, 000) Total FOH P 64,625 P 61,075 Base 1,500DLHrs . 1,250 DLHrs FO Rate P 43.08DLHr. P48.86/DLHr . *(14 000 x 2/5)
**(14 000 x 3/5)
***(11 000 x 2 300/4 000) ****(11 000 x 1 700/4 000)
2. Step Method
Machinery Assembly Repair Cafeteria Direct cost P 52, 500 P 48, 000 P 14, 000 P 11, 000 Allocated cost Repair 4, 119* 6, 176** ( 14, 000) 3, 705*** Cafeteria 8, 455**** 6, 250***** ( 14, 705) Total P 65, 074 P 60, 426 Base 1, 500 DLHrs. 1, 250 DLHrs FO rate P 43.38/DLHr P48.34/DLH r. *(14 000 x 2 000/6 800) **(14 000 x 3 000/6 800) ***(14 000 x 1 800/6 8000 ****(14 705 x 2 300/4 000) *****(14 705 x 1 700/4 000) Problem 7
Central Parkway Corp. has two producing and two service departments labeled P1, P2, S1, S2, respectively. Direct cost for each department and the portion of service costs used by the various departments are as follows:
Cost Direct Proportion of service used by: Center Costs S1 S2 P1 P2 P1 P 120,000
P2 80,000
S1 25,000 - .25 .50 .25 S2 10,000 .10 - .50 .40
Required: Allocate the service department cost using algebraic method. Answer: P1 P2 S1 S2 Direct cost 120, 000 80, 000 25, 000 10, 000 Allocated S1 13, 333 6, 667 ( 26, 667)* 6, 667 S2 8, 333 6, 667 1, 667 (16, 667)** Total 141, 666 93, 334 S1 = 25, 000 + 10% of S2 S2 = 10, 000 + 25% of S1 S1 = 25, 000 + 10% (10, 000 + .25S1 = 25, 000 + 1, 000 + .025S1 S1 - .025 S1 = 26, 000 S1 = 26, 000/.975 = 26, 667* S2 = 10, 000 + .25(26, 667) = 16, 667** Problem 8
Megastar Company’s normal operating capacity is estimated at 95,000 machine hours per month. At this operating level, fixed factory overhead is estimated to be P34, 200 and variable factory overhead is estimated to be P41,800. During November, the company operated 100,000 machine hours. Actual factory overhead for the month totalled P78, 600.
Required: Compute for the following
1. The over or under applied factory overhead. 2. The spending variance.
3. The idle capacity variance.
Answer:
Total Per Mach.Hr.
Fixed 34,200 0.36 (34,200/95,000) Variable 41,800 0.44 (41,800/95,000)
1. Actual factory overhead P 78,600 Less: Applied 80,000* Overapplied factory overhead ( 1,400) *(100,000 x .80)
2. Actual factory overhead P 78, 600 Less: Budget allowed on actual hours
Fixed 34, 200
Variable 44, 000* 78, 200 Spending variance – unfavorable P 400 *(100,000 x .44)
3. Budged allowed on actual hours P 78, 200 Less: Applied factory overhead 80, 000 Idle capacity variance favorable ( 1, 800)
Problem 9
Normal annual capacity for Abner Company is 72,000 units, with fixed factory overhead budgeted at P33, 840 and an estimated variable factory overhead rate for P4.20 per unit. During October, actual production was 5,400 units, with a total overhead of P15, 910.
Required: Compute for the following 1. The applied factory overhead
2. The over or under applied factory overhead 3. The spending variance
4. The idle capacity variance
Answer:
1.
Total Per unit
Fixed P 33, 840 P 0.47 (33, 840/72, 000) Variable 302, 400 4.20 (72, 000 x 4.20) Total P336, 200 P 4.67
=5, 400 x 4.67 =25, 218
Less: Applied Factory Overhead 25, 218* Underapplied Factory Overhead (P 9, 308) *(5, 400 units x P 4.67)
3. Actual Factory Overhead P 15, 910 Less: Budget allowed on actual hours
Fixed 2, 820*
Variable 22, 680** 25, 500
Spending variance – favorable (P 9, 590) *(33, 840/12 months)
**(5, 400 x 4.20)
4. Budged allowed on actual hours P25, 500 Less: Applied 25,218
Idle capacity variance – unfavorable P 282
Problem 10
Norman Corporation uses a flexible budget system a prepared the following information for 2012.
Normal capacity Maximum capacity Percentage of capacity 80% 100%
Direct labor hours 48,000 60,000
Total budgeted factory overhead P252, 000 P270, 000
Norman planned to operate at normal capacity but actually operated at 90% of maximum capacity during 2012. The actual factory overhead for 2012 was P273, 000.
Requirements:
1. Using HI-LO method, compute for the variable rate per hour. 2. Determine the fixed portion of the budgeted factory overhead. 3. Compute for the spending variance.
4. Compute for the idle capacity variance.
Answer:
1. Variable rate/hour = _270, 000 – 252, 000_ 60, 000 - 48, 000
= P1.50/DLHr.
2. Total 270, 000 252, 000 Less: Variable
(60, 000 x 1.50) 90, 000
(48, 000 x 1.50) _______ __ 72, 000_ Fixed 180, 000 180, 000 Factory Overhead rate = 252, 000 = 5.25/ DLHrs.
48, 000
Actual factory overhead 273, 000 Less: Applied 283, 500* Overapplied Factory Overhead (10, 500) *(60, 000 x 90%) x 5.25
3. Actual factory overhead 273, 000 Less: Budget allowed on actual hours
Fixed 180, 000
Variable 81, 000* 261, 000
Spending variance - unfavorable 12, 000 *(54, 000 x 1.50)
4. Budget allowed on actual hours 261, 000 Less: Applied 283, 500_ Idle capacity variance - favorable (22, 500)
Problem 11
The strawberry Corporation has the following information relating to applied and actual factory overhead.
Factory overhead control P30, 500 Applied factory overhead 39,700
Applied factory overhead costs are in the following accounts. Cost of goods sold P32, 000 Ending work in process inventory 3,500
Ending finished goods inventory 4,200 Required:
a. Allocate the under or overapplied factory to those accounts distorted by using what turned out to be an incorrect factory overhead application rate.
Answer:
a. Actual factory overhead 30,500 Less: Applied factory overhead _39,700_ Overapplied factory overhead – favorable (9, 200) Cost of goods sold 32, 000/39, 700 x 9, 200 = 7,416 Work in process inventory 3, 500/39, 700 x 9, 200 = 811_ Finished goods inventory 4, 200/39, 700 x 9, 200 = 973
9,200
b. Applied factory overhead 39,700
Cost of goods sold 7,416 Work in process inventory
811
Finished goods inventory 973
Factory overhead control 30,500
Problem 12
For many years Tinor Company has used a manufacturing overhead rate based on direct labor hours. A new plant accountant has suggested that the company may be able to assign overhead costs to products more accurately by using an activity-based costing system. The accountant explains that by creating an overhead rate for each production activity that causes overhead costs, the resulting product costs will reflect an accurate measure of overhead cost. The direct material cost is P120 per unit. The budgeted hours are 8,030 direct labor hours. The accountant has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for 2012.
ACTIVITY CENTERS COSTS ACTIVITY DRIVERS
Materials handling P 60, 000 1,200 times handled
Scheduling and setups 80, 000 400 setups Design section 10, 750 100 changes No. of parts 50, 000 500 parts
The company’s products and other operating statistics follow:
Qty. DLH DL No. of time No. of No. of No. of
Prod. Produced Used Cost Handled Parts Changes Setups
A 50 100 P6, 000 20 6 3 5 B 100 300 18,000 40 10 5 7 Required:
1. Compute the unit cost for each product using direct labor hours as the overhead application base.
2. Compute the unit costs for each product using activity-based costing. Answer: 1. Product A Product B Direct materials (50 x P120) P 6,000 (100 x P120) P 12, 000 Direct labor 1,000 3, 000 Factory overhead (100 x P 25) 2,500 (300 x P 25) 7, 500
Total manufacturing cost P 9,500 P 22, 500 No. of units 50 100_
Cost per unit P 190/unit P 225/unit Factory overhead rate = P200, 750/8,030 direct labor hours = P 25/DLHr.
2. Product A Product B
Direct materials (50 x P120) P 6,000 (100 x P120) P 12,000 Direct labor 1,000 3,000 Factory overhead
Material handling (40 x P50) 2,000 (20 x P50) 1,000 Scheduling & setup (7 x 200) 1,400 (5 x 200) 1.000 Design section (5 x P 107.50) 537,500 (3 x 107.50) 322.50 No. of parts (10 x 100) 1,000 (6 x 100) 600_ Total costs P 11,937.50 P 17,922.50 No. of units 50__ 100_
Cost per unit P 238.75/unit P 179.23/unit
TRUE-FALSE QUESTIONS
Indicate whether the following statements are true or false by inserting in the blank space provided, a capital “T” for true or “F” for false.
1. Service departments are sometimes called indeterminate cost centers , while production departments would be the final cost centers. 2. Service departments are production departments, such as assembly departments, that manufactured goods.
3. One of the purposes of service department cost allocation is to value in inventory for external financial reporting.
4. The direct method is a method of cost allocation that charges costs of service departments to user departments and ignores any services used by other service departments.
5. Under, the step method of cost allocation, the final amount of pesos allocated to any production department is influenced by the order in which the allocation is made from the service departments.
6. If there are no inter-service department activities, then all three allocation methods will give identical results.
7. When a plant-wide rate is used, this means that a single rate used to allocate overhead to all departments in the company.
8. With the algebraic method, each department’s costs are set out in an equation where total costs equal the sum of direct costs and allocated costs.
9. Inter-service departments activities are fully ignored by both the direct and step methods of cost allocation.
10. Overapplied overhead occurs when actual is less than applied OH.
11. The predetermined overhead rate is an amount obtained by dividing the total overhead for the past period by the total overhead allocation base for the coming period.
12. When overapplied overhead is assigned to Cost of Goods Sold, the effect is to increase the balance on the Cost of Goods Sold account. 13. The numerator reason refers to the overhead variance caused by the difference between the estimated and actual OH costs for the period.
14. If all manufacturing overhead costs were variable, the production volume variance would always be zero.
15. The sum of the spending variance and the volume variance equals the total manufacturing overhead variance.
ANSWER: 1. T 6. T 11. F 2. F 7. T 12. F 3. T 8. T 13. T 4. T 9. F 14. T 5. T 10. T 15. T
MULTIPLE CHOICES
1 Manufacturing overhead applied was P120, 000, while actual overhead incurred was P124, 000. Which of the following is always true of the above?
a Direct labor activity was overestimated. b Overhead was overapplied by P4, 000. c Overhead was underapplied by P4, 000.
d This difference must be reported as a loss for the period.
2 Depreciation based on the number of units produced would be classified as what type of cost?
a Out-of-pocket b Marginal c Variable d Fixed
3 The only method of allocating service department costs to producing departments that considers reciprocal service is called the
a Direct method b Step method
c Out-of-step method d Algebraic method
4. In the determination of factory overhead application rates, the numerator of the formula is the:
a. Actual factory overhead for the next period b. Estimated factory overhead for the next period c. Actual labor hours for the next period
d. Estimated labor hours for the next period
5. The variable factory overhead application rate under the normal, practical, and expected activity levels would be the same
a. Expect for normal volume b. Expect for practical capacity c. Expect for expected activity d. For all three activity levels
6. Which productive capacity level does not consider product demand, but at the same time accounts for anticipated and unavoidable interruptions in production?
a. Expected productive capacity b. Normal productive capacity
c. Theoretical or maximum productive capacity d. Practical productive capacity
7. Which productive capacity level does not have provision for either a lack of sales orders or interruptions in production (due to work stoppages, machine repairs and maintenance, set-up time, holidays, weekends, etc.
a. Expected productive capacity b. Normal productive capacity
d. Practical productive capacity
8. Which productive capacity level is based in estimated production for the next period?
a. Expected productive capacity b. Normal productive capacity
c. Theoretical or maximum productive capacity d. Practical productive capacity
9. Which of the following describes a part of step method of allocation? a. All services between intermediate cost centers are simultaneously allocated to final cost centers.
b. It ignores services between intermediate cost centers c. Linear algebra is required for the allocation
d. Once an allocation is made from on service department, no further allocation is made to this department.
10. Which of the following is not true of the methods of allocating service department costs to user departments?
a. A cause and effect basis is the preferred method of allocation b. Each method allocates the same total cost when there are no interservice department activities.
c. If a cause and effect relationship cannot be established for service department costs, then an allocation cannot be conducted. d. The level of detail associated with allocating service department costs should be decided on a cost-benefit basis.
Answer: 1. c 6. d 2. c 7. c 3. d 8. a 4. b 9. d 5. d 10. a
MULTIPLE CHOICE – PROBLEMS
The following information for Ram Corporation relates to question 1 and 2
Service departments (total estimated costs)
Building and ground maintenance P 21,960.40
Storeroom 15,990.00
Producing departments (estimated factory overhead costs)
Department A 42,000.00
Department B 51,000.00
Est. DL Hrs. Est. Sq. Ft. No. of Requisitions
Bldg. and ground maintenance 750 150
Storeroom 130 40
Department A 1,925 890 2,500 Department B 1,200 2.330 1,400 The base to be used for allocating the cost of Building and ground maintenance is square feet and for the storeroom cost is the number of requisition. Direct labor hours are used to compute the producing departments’ factory overhead application rate
1. Using the direct method, what is Department A’s factory overhead rate?
a. P 30.30 b. P 47.46 c. P 55.70 d. P 60.53
2. Using the algebraic method, compute for the building and Grounds Maintenance Department total amount to be allocated to the Storeroom Service Department and both producing departments. (Take all calculations of hour decimal places but round all answers to the nearest peso)
a. P 21,960 b. P 22,584 c. P 23,467 d. P 24,722
Boone Manufacturing had worked on two jobs, job 101 and Job 102 last year. The estimated manufacturing overhead for last year was P 30,000 (fixed) and P5.00 per direct labor hour (variable) and estimated 2,000 direct labor hours. The factory overhead control account has a balance of P 37,000. Actual hours used for Job 101 was 1,200 and for Job 102 were 1,000.
3. What is the total spending variance? a. P 4,000 unfavorable
b. P 3,000 unfavorable c. P4,000 favorable d. P 7,000 favorable
4. What is the total production variance? a. P 4,000 unfavorable
b. P 3,000 unfavorable c. P 3,000 favorable d. P 7,000 favorable
The following information relates to Fay Corporation for the past accounting period.
Producing Departments Service Departments
C D A B Direct costs P 15,000 P 20,000 P 80,000 P 60,000
Proportion of service by A to: B 10%
C 60% D 30%
Proportion of service by B to: A 30%
C 20% D 50%
5. Using the algebraic method, department A’s cost allocated to department C is:
a. P 48,000 b. P 58,800 c. P 60,619 d. P 98,000
6. Using the algebraic method, department B’s cost allocated to department C is: a. P 7,794 b. P 13,192 c. P 14,021 d. P 29,021
AMR Corp. currently uses a firm-wide overhead application based on expected direct labor hours.The following information is anticipated at the beginning of the year.
Department A Department B
Direct materials P 25.00/1b. P 17.00/1b.
Direct labor hours 10,000 5,000 Machine hours 2,000 10,000 Overhead P115, 000 P85, 000 Labor rate P 15.00/hr P 12.00/hr
7. If the firm maintains the current method, the overhead application rate is:
a. P 7.67/hr b. P11.50/hr c. P13.33/hr d. P20.00/hr
8. If departmental rates were adopted,what would be the rates for Departments A
(Based on direct labors hours) and B (based on machine hours)
A B
a. P11.50 P 8.50 b. P11.15 P17.00 c. P57.50 P 8.50 d. P57.50 P17.50
Sensual Scents, Inc. uses job-order cost system with machine hours as the overhead base. At the beginning of last year, Sensual estimated 38,000 machine hours were logged but P153, 500 of overhead cost was incurred.
9. What is sensual’ under-or overapplied manufacturing overhead? a. P 1,500 underapplied
c. P2,000 underappld d. P3,500 underapplied
The following information relates to Donna Corporation for the last year. Donna uses direct labor hours as anoverhead base.
Estimated direc labor hours 136,000 hours Estimated manufacturing overhead costs P 108,800 Actual manufacturing overhead costs 108,480 Applied manufacturing overhead costs 110,000
10. What was the actual number ofn direct labor hours worked last year at Donna?
a. 86,794 hours b. 88,320 hours c. 135,600 hours d. 137,500 hours
D’Santos uses a job-order cost system with machine hours as an overhead base. The following information relates to D’Santos for last year:
Estimated machine hours for the year 42,000 Actual machine hours for the year 40,800
Predetermine overhead rate P1.50 per MH Underapplied factory overhead P 2,600 11. What is the peso amount of the following items?
Estimated OH Applied OH Actual OH a. P 61,200 P 63,000 P60, 400 b. P61, 200 63,000 65,600 c. P63, 000 61,200 18,600 d. P63, 000 61,200 63,800
Justine Company budgeted total variable overhead costs at P 180,000 for the current period. In addition, they budgeted costs for factory rental P215, 000, costs for depreciation of office equipment at P12, 000 costs for office rent at P92,000, and costs for deprecation of factory equipment at 38, 000. All these costs were based upon estimated machine hours 80,000. At the end of the period, the Factory Overhead control account had a balanced of P387, 875. Actual machine hours were 74,000.
12. What as the over or underapplied factory overhead for the period?
a. P 12,650 overapplied b. P 12,650 uderapplied c. P 108,850 overapplied d. P 108,850 underapplied
Candice Company uses activity-based costing to determine the unit product costs for external reports. The company has two products: Candy A and Candy B. The annual production sales of Candy A are 10,000 units and of Candy B are 4,000 units. There are three overhead centers, with estimated overhead costs and expected activity as follows:
Activity Est. overhead Expected Activity Center Candy A Candy B Total Activity 1 25,000 150 100
250
Activity 2 65,000 800 200 1,000
Activity 3 90,000 1,000 2,000 3,000 13. The overhead cost per unit of Candy A under activity-based
costing is a. P6.00 b. P9.70 c. P1.50 d. P3.00 e.
The following information relates to Pure Corporation for the past accounting period .
Service Department Direct Cost
A P80, 000
B 60, 000
Producing Department
C 15, 000
D 20, 000
Proportion of service by A to:
B 10%
C 60%
D 30%
Proportion of service by B to:
A 30%
C 20%
D 50%
14. Using the simultaneous method, Dept. A’s allocated to Dept. C is
a. P40,000 b. P58,800 c. P60,619 d. P98,000
Marvine Company uses a job costing system and applies overhead to products on the basis of direct labor cost. Job no. 75 the only job in process on January 1 had the following costs assigned as of that date: direct materials, P40, 000; direct labor, P80, 000; and factory overhead, P120, 000. The following selected costs were incurred during the year 2016:
Traceable to jobs:
Direct Materials P 178,000
Direct labor 350,000 P523, 000
Not traceable to jobs:
Factory materials and supplies 46,000 Indirect labor 235,000
Plant maintenance 73, 000 Depreciation on factory equipment 29, 000
Other factory costs 76, 000 459, 000
Marvin’s profit plan for the year included budgeted direct labor of P320, 000 and factory overhead of P384, 000
15. Assuming no work-in-process on Dec. 31, Marvin’s overhead for the year as
a. P11,000 over-applied b. P24,000 over-applied c. P39,000 under-applied d. P11,000 under-applied
Candice Corporation produces reusable Christmas cards in two departments: printing and laminating. These departments are supported by two service departments: Personnel and Maintenance. Personnel use the number of employees as an allocation base and Maintenance uses machine hours. The expected level of activity for next quarter is shown below.
No. of employees Machine hours
Personnel 40
-Maintenance 60
-Printing 120 60,000
Laminating 180 40,000
Allocations are made in the order shown above. Budgeted costs for next quarter are P39, 000 for Personnel and P68, 000 for Maintenance.
16. What is the total amount of service cost that should be allocated to the Printing Department under the direct and step method?
Direct method Step method a. P68,700 P77,070 b. P77,070 P78,000 c. P78,000 P81,100 d. P78,000 P77,070
Super Soak produces two types of sponges: Natural and Super-suds. Both are produced on the same assembly line but are considered separate divisions. The company wants to know how to allocate manufacturing overhead to the products. The relevant data for the possible allocation bases are given below
Natural Super-Suds Materials used P 40,000 P 25,000
Direct labor hours 20,000 35,000 Direct labor costs P 100,000 P 145,000 Machine hours 6,000 15,000
Outputs units 25,000 30,000 The company incurred manufacturing overhead of P48,000.
17. Using Direct labor hours, how much overhead will be allocated to the super-Suds
a. P29,544 b. P30,545 c. P30,455 d. P34,054
18. Using machine hours, how much overhead will be allocate to the Natural?
a. P13,714 b. P28,500 c. P17,455 d. P34,286
Hackers Corp. accumulated the following information for its products. A and B,
Product A Product B Total Production volume 2, 000 1, 000
Total direct labor hours 5, 000 20, 000 25, 000 Setup cost per bath P 1, 000 P 2, 000
Total set-up cost incurred P20, 000 P 40,000 P60, 000
Direct labor hour per unit 2 1
A traditional costing system would allocate set-up costs on the basis of direct labor hours. An ABC system would trace costs by spreading the cost per batch over the units in a batch.
19. What is the set-up cost per unit of Product A under each costing system?
Traditional ABC System
a. P4.80 P10.00
b. 2.40 10.00
c. 40.00 200.00
d. 4.8 20.00
A summary of the usage of the service department services by other service departments as well as by the two producing departments is as follows:
Equipment Building Production Dept.
Serving Cost Center Supervision Maintenance Occupancy Dept. 1 Dept.2 Supervision 0 10% 5% 40% 45% Equinpment maint. 0 0 0 45% 55% Building occunpanny 10% 10% 0 35% 45%
Direct costs in the varius deprtments are as follows:
Department Direct Cost Label Supervision P 35,000 S1 Equipment maintenance 30,000 S2 Building occupancy 90,000 S3 Product Dept .No. 1 350,000 P1
20. If the direct method of allocation is used, how much of the supervision department’s cost would be allocated to the building occupancy department?
(Start with Building occupancy, then Supervision) a. 0
b. P 1, 750 c. P 3, 500
d. P 5, 250
21. If the direct method of allocation is used, how much of the equipment maintenance costs would be allocated to production department No. 1?
a. 0
b. P 13, 500 c. P 16, 500 d. P 30, 000
22. If the step method of allocation is used, how much would be allocated from supervision to production department No. 1
a. P 14, 000 b. P 16, 471 c. P 17, 600 d. P 18, 500
23. If the step method of allocation is used, how much would be allocated from supervision to building occupancy?
a. 0
b. P 1, 750 c. P 2, 200 d. P 2, 444
Stargazer Company logged 7, 250 machine hours for the month of June. P42, 500 was spent for manufacturing overhead and this overhead is allocated on the basis of machine hours. The Company operates 5 departments; however, one department was closed for the month of June due to poor market conditions for its product. It was decided that this department should be allocated a lump sum of 5, 000 as its share of June overhead.
24. If this policy is followed, how much overhead would be charged to Department 2, which used 1, 750 machine hours?
a. P 1, 207 b. P 9, 052 c. P 10, 259 d. P 20, 714
Consolidated Magnets, Inc. has 3 plants. Each plant produces identical magnets but uses only different manufacturing processes. Each plant sells to different customers, setting its prices. Headquarters’ costs total P 350, 000. Factors that are considered for allocation purposes are as follows:
Payroll Unit Volume Peso Volume Assets
Plant A P 335, 000 15, 000 P 500, 000 P 300, 000 Plant B 450, 000 19, 000 900, 000 600, 000 Plant C 280, 000 17, 500 750, 000 800, 000__ Totals P 1, 065, 000 51, 500 P 2, 150, 000 P 1, 700, 000
25. What is the amount of headquarters’ costs to Plant A if payroll is used as the allocation base?
a. P 75, 053 b. P 92, 019 c. P 110, 094 d. P 1, 019, 357
26. What is the amount of headquarters’ cost allocated to Plant B if sales volume, in pesos, is used as the allocated base?
a. P 81, 395 b. P 129, 126 c. P 146, 512 d. P 268, 605
Camille Company has underapplied overhead of P 45, 000 for the year ended December 31. Before disposition of the underapplied overhead, selected December 31 balances from Camille Company’s records are as follows:
Cost of goods sold P 720, 000 Inventories:
Direct Materials 36, 000 Work in process 54, 000 Finished goods 90, 000
Under Camille’s cost accounting system, over or underapplied overhead is allocated to appropriate inventories and cost of goods sold based on year-end balances.
27. In its income statement, Camille should report cost of goods sold of a. P 682, 500
b. P 684, 000 c. P 756, 000 d. P 757, 500
Happy Burger Co. has a commissary that supplies food and other products to its restaurants. It has two service departments, computer services (S1) and administration and maintenance (S2), which support two operating departments, food products (P1) and supplies (P2). As internal auditor,
you are checking the procedures for cost allocation and find the following results: Costs allocated to P1: P 30, 000 from S1 ? from S2 Costs allocated to P2: P 15, 000 from S2 ? from S1
Total costs for the two service departments – P 80, 000 S2’s services are provided as follows:
20% to S1 50% to P1 30% to P2
28. Using direct method of allocating service department costs, compute the total service department costs incurred by S2.
a. zero b. P 20, 625 c. P 40, 000 d. P50, 000
Porthos Co. has identified an activity cost pool to which it has allocated estimated overhead of P 1, 920, 000. It has determined the expected use of cost drivers for that activity to be 160, 000 inspections. Product W require 40, 000 inspections and Product x require 30, 000 inspections. 29. The overhead assigned to product W is
a. P 40, 000 b. P 640, 000 c. P 360, 000 d. P 480, 000
30. The overhead assigned to product X is a. P 30, 000 b. P 640, 000 c. P 480, 000 d. P 360, 000 ANSWER: 1.
