CHAPTER 7
CHAPTER 7
Multiple Choice Questions
Multiple Choice Questions
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Theoretical Theoretical1. 1. c c 5. 5. b b 9. 9. aa 2. 2. b b 6. 6. c c 10. 10. cc 3. 3. b b 7. 7. a a 11 11 aa 4. 4. b b 8. 8. d d 12. 12. CC
Multiple Choice Questions
Multiple Choice Questions
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Computational Computational1. (c) 1. (c) 30,000 / 40,000 x P100,000 = 30,000 / 40,000 x P100,000 = P75,000P75,000 2. (a) 2. (a) 40% x P20,000 40% x P20,000 = P10,000= P10,000 3. (b) 3. (b) Computer
Computer time: time: (P4,500 (P4,500 x x 70%)70%) = P3,150= P3,150
Computer
Computer program: (P4,500 program: (P4,500 - P3,150) - P3,150) + + P2,500P2,500 = P3,850= P3,850 4. (a)
4. (a) 5. (d) 5. (d)
Service department costs: Service department costs: S1 S1 = = P27,000 P27,000 + + .20 .20 S2S2 = = P27,000 P27,000 + + .20 .20 (P18,000 (P18,000 + + .10 .10 S1)S1) = = P27,000 P27,000 + + P3,600 P3,600 + + .02 .02 S1S1 .98S1 .98S1 = = P30,600P30,600 S1 S1 = = P31,224P31,224 S2 S2 = = P18,000 P18,000 + + .10 .10 (P31,224)(P31,224) = = P18,000 P18,000 + + P3,122P3,122 = P21,122 = P21,122 Total serv
Total service cost aice cost allocated to llocated to P2: (40% x PP2: (40% x P31,224) 31,224) + + (50% x P21,122) (50% x P21,122) ==P23,051P23,051 6. (d) 6. (d) 30% / 90% x P9,000 = 30% / 90% x P9,000 = P4,500P4,500 7. (b) 7. (b)
Under the step method, the maintenance department would allocate its P18,700 of Under the step method, the maintenance department would allocate its P18,700 of cost first, because it has
cost first, because it has the greatest total cost. the greatest total cost. Note that both the maintenNote that both the maintenance andance and utilities departm
utilities department provides sent provides service to the ervice to the other servother service departmice department. ent. Thus, theThus, the criterion for first allocation is greatest cost, not greatest number of service criterion for first allocation is greatest cost, not greatest number of service department.
8. (c)
As determined in No. 7, the Maintenance Department budget is allocated first under the step method. Thus, P3,740 (20% of P18,700) is allocated to the Utilities Department. Now the Utilities Department has P12,740 (P9,000 + P3,740) to allocate between Departments A and B.
9. (b)
Under the reciprocal method, simultaneous equations are developed to determine the gross costs of each service department, taking into account the i nteractive effect of other service departments providing inter service department service. For Utilities, the cost is P9,000 plus 20% of the Maintenance cost, 30% of its will be applied to Department A and 60% to B. The 10% that have already been assigned to the Maintenance Department is reflected in the set of simultaneous equations.
10. (d)
M = Maintenance Department’s total cost E = Engineering Department’s total cost M = P12,000 + .20E E = P54,000 + .25M E = P54,000 + .25 (P12,000 + .20 E) E = P54,000 + P3,000 + .05E .95E = P57,000 E = P60,000 11. (a)
Out of the total Engineering Department’s cost of P60,000, P48,000 is allocated to producing departments on the basis of total hours as follows:
Dept. A: (800 / 2,000) x P60,000 = P24,000 Dept. B: (400 / 2,000) x P60,000 = 12,000 Dept. C: (400 / 2,000) x P60,000 = 12,000 Total P48,000 12. (a) M = P12,000 + .20E E = P54,000 + .25M M = P12,000 + .20 (P54,000 + .25M) M = P12,000 + P10,800 = .05M .95M = P22,800 M = P24,000 Or: E = P60,00 M = P12,000 + .20E M = P12,000 + P12,000 M = P24,000
13. (a) 14. (d)
Under the direct method, no service department costs are allocated to another service department. Thus, there would be no maintenance cost allocated to the Engineering Department. 15. (c) 200 / 1,200 x P12,000 = P2,000 16. (b) 800 / 1,600 x P54,000 = P27,000 17. (c) 400 / 1,600 x P12,000 = P3,000 18. (c) 200 / 1,600 x P12,000 = P1,500 19. (d)
Under the step method, once department’s cost have been allocated to subsequent departments, no reallocation back to Maintenance Department is to be made. Thus, no Engineering costs is reallocated to the Maintenance Department.
20. (b)
400 / 1,600 x (P54,000 + P3,000) = P14,250 21. (d)
Maintenance costs: (800 / 1,600) x P12,000 = P 6,000 Engineering costs: (800 / 1,600) x (P54,000 + P3,000) = 28,500
Total allocated to Department A P34,500
22. (d)
Total Factory Maintenance Cost x Fabrication Square footage occupied Total Square Footage
P82,100 + P65,000 + P56,100 x 88,000 = P111,760
23. (a)
General Factory Adm. Dept. Cost x DLH of Assembly Total Direct Labor Hours
P90,000 + P70,000 x 437,500 = P70,000 562,500 + 437,500
24. (b)
Total Factory Cafeteria Cost x No. of employee of Total employee Factory Maintenance P87,000 + P91,000 + P62,000 x 8 = P3,840
280 + 200 + 12 + 8
25. (b)
Factory Cafeteria cost P240,000 Factory Maintenance cost P203,300 Factory Cafeteria cost already closed out.
26. (b)
Pesos of Assets No. of
Employed % Employees % Advertising P 762,400 29 12 32 Circulation 1,870,300 71 25 68 P2,632,700 37 Advertising Circulaton Administration: P781,500 x .29 P226,635 P781,500 x .71 P554,865 Human Resources: P492,700 x .32 157,664 P492,700 x .68 335,036 Total P384,299 P889,901 Advertising: P 957,800 + P384,299 = P1,342,099 Circulation: P1,352,600 + P889,901 = 2,242,501 P3,584,600 27. (a) Administration (P781,500): Base % Allocation Human Resources P 291,700 10 P781,500 Advertising 762,400 26 203,190 Circulation 1,870,300 64 500,160 P2,924,400 P781,500
Question 27, (continued)
Human Resources (P492,700 + P78,150 = P570,850): Base % Allocation Advertising 12 32 P182,672 Circulation 25 68 388,178 37 P570,850 Advertising: P 957,800 + P203,190 + P182,672 = P1,343,662 Circulation: P1,352,600 + P500,160 + P388,178 = 2,240,938 P3,584,600 28, (a) Administration H. Resources Base % Base %Administration (A) n/a n/a 10 21
Human Resources (H) P 291,700 10 n/a n/a
Advertising 762,400 26 12 26 Circulation 1,870,300 64 25 53 P2,924,400 47 Equation: A = P781,500 + .21 H H = P492,700 + .10 A A = P781,500 + .21 (P492,700 + .10 A) A = P781,500 + P103,467 + .021 A .979A = P884,967 A = P903,950 H = P492,700 + .10 (P903,950) H = P492,700 + P90,395 H = P583,095 Administration allocations: Human resources: P903,950 x .10 = P 90,305 Advertising: P903,950 x .26 = P235,027 Circulation: P903,950 x .64 = P578,528 Human Resource allocations:
Administration: P583,095 x .21 = P122,450 Advertising: P583,095 x .26 = P151,605 Circulation: P583,095 x .53 = P309,040
Administration H. Resource Advertising Circulation
Direct costs P781,500 P492,700 P 957,800 P1,352,600 Administration (903,950) 90,395 235,027 578,528 H. Resources 122,450 (583,095) 151,605 309,040
29. (b)
Administration Editorial
Department Base % Base %
Administration (A) n/a n/a 10 10 Editorial (E) P 144,000 6 n/a n/a College Texts 1,200,000 50 55 55 Prof. Pubs. 1,056,000 44 35 35 Total P2,400,000 100 100 100 Equation: A = P450,000 + 0.10E E = P350,000 + 0.06A A = P450,000 + 0.10 (P350,000 + 0.06A) A = P450,000 + P35,000 + 0.006A 0.994A = P485,000 A = P487,928 E = P350,000 + 0.06 (P487,928) E = P350,000 + P29,276 E = P379,276 Administration Costs: Editorial: P487,928 x 0.06 = P 29,276 College texts: P487,928 x 0.50 = 243,964 Prof. pubs.: P487,928 x 0.44 = 214,688 Editorial Costs: Administration: P379,276 x 0.10 = P 37,928 College texts: P379,276 x 0.55 = P208,602 Prof. Pubs.: P379,276 x 0.35 = P132,746 College
Department Administration Editorial Texts Prof. Pubs.
Direct costs P450,000 P350,000 P2,250,000 P 950,000 Administration (487,928) 29,276 243,964 214,688 Editorial 37,928 (379,276) 208,602 132,746
Total P 0 P 0 P2,702,566 P1,297,434
Solutions to Problems Problem 7-1
(a) DL Hours % Square Footage %
Machinery 2,000 55.56 1,900 37.25 Assembly 1,600 44.44 3,200 62.75 3,600 100.00 5,100 100.00 Allocation: Machinery Assembly Factory Administration: P129,000 x 55.56% P7 1,672 P129,000 x 44.44% P 57,328
Building and grounds:
P105,000 x 37.25% 39,113
P105,000 x 62.75% 65,888
Total P110,785 P123,216
Total costs after allocation:
Machinery: P416,000 + P110,785 = P526,785 Assembly: P380,000 + P123,216 = P503,216 Factory overhead rates (based on machine hours):
Machinery: P526,785 / 30,000 = P17.56 per hour. Assembly: P503,216 / 22,800 = P22.07 per hour
(b) Factory Administration (P129,000):
Base % Allocation
Building and Grounds 1,100 23.41 P 30,199
Machinery 2,000 42.55 54,890
Assembly 1,600 34.04 43,911
Total 4,700 100.00 P129,000
Building and grounds (P105,000 + P30,199 = P135,199):
Base % Allocation
Machinery 1,900 37.25 P 50,362
Assembly 3,200 62.75 84,837
Total 5,100 100.00 P135,199
Total costs after allocation:
Machinery: P416,000 + P54,890 + P50,362 = P521,252 Assembly: P380,000 + P43.911 + P84,837 = P508,748 Factory overhead rates (based on machine hours):
Machinery: P521,252 / 30,000 = P17.38 per hour Assembly: P508,748 / 22,800 = P22.31 per hour
Problem 7-1 (continued)
(c) Factory Building and
Adm. % Grounds %
Factory adm. (F) n/a n/a 1,200 .19
Building grounds (B) 1,100 .23 n/a n/a
Machinery 2,000 .43 1,900 .30 Assembly 1,600 .34 3,200 .51 Equation: F = P129,000 + .19B B = P105,000 + .23F F = P129,000 + .19 (P105,000 + .23F) F = P129,000 + P19,950 + .0437F .9563F = P148,950 F = P155,757 B = P105,000 + .23(P155,757) B = P105,000 + P35,824 B = P140,824 Cost Allocations:
Factory Administration allocations:
Building and grounds: P155,757 x .23 = P35,824 Machinery: P155,757 x .43 = P66,976 Assembly: P155,757 x .34 = P52,957 Building and Grounds allocations:
Factory administration: P140,824 x .19 = P26,757 Machinery: P140,824 x .30 = P42,247 Assembly: P140,824 x .51 = P71,820
Total cost after allocations:
Building &
F. Admin. Grounds Machinery Assembly
Direct cost P129,000 P105,000 P416,000 P380,000 F. Administration (155,757) 35,824 66,976 52,957 Bldg. and Grounds 26,757 (140,824) 42,247 71,820 Total P 0 P 0 P525,223 P504,777 F/O rates P17.51 P22.14 Problem 7-2
(a) Machinery Assembly Packaging
Maintenance: P250,000 x .32/.86 P 93,023 P250,000 x .26/.86 P 75,581 P250,000 x .28/.86 P 81,395 Storeroom: P180,000 x .26 46,800 P180,000 x .44 79,200 P180,000 x .30 54.000 Total P139,823 P154,781 P135,395
Problem 7-2 (continued):
Machinery Assembly Packaging
Direct Cost P 600,000 P 892,000 P 436,000 Service dept. allocated cost 139,823 154,781 135,395 Total cost after allocation P 739,823 P1,046,781 P 571,395 Factory overhead rates P36.99 P29.08 P31.74
(b) Maintenance (P250,000): Storeroom: P250,000 x .14 = P35,000 Machinery: P250,000 x .32 = 80,000 Assembly: P250,000 x .26 = 65,000 Packaging: P250,000 x .28 = 70,000 Storeroom (P180,000 + P35,000 = P215,000) Machinery: P215,000 x .26 = P55,900 Assembly: P215,000 x .44 = 94,600 Packaging: P215,000 x .30 = 64,500
Machinery Assembly Packaging
Direct cost P 600,000 P 892,000 P 436,000
Maintenance cost 80,000 65,000 70,000
Storeroom cost 55,900 94,600 64,500
Total cost P 735,900 P1,051,600 P 570,500 Factory overhead rates P36.80 P29.21 P31.69
(c)
Maintenance Storeroom
Base % Base %
Maintenance (M) n/a 400 0.03
Storeroom (S) .14 n/a n/a
Machinery .32 3,500 0.25 Assembly .26 6,000 0.43 Packaging .28 4,100 0.29 14,000 Equation: M = P250,000 + .03S S = P180,000 + .14M M = P250,000 + .03 (P180,000 + .14M) M = P250,000 + 5,400 + .0042M .9958M = P255,400 M = P256,477 S = P180,000 + .14M S = P180,000 + .14 (P256,477) S = P180,000 + P35,907 S = P215,907
Problem 7-2 (continued)
Maintenance allocations: Storeroom: P256,477 x .14 = P 35,907 Machinery: P256,477 x .32 = P 82,073 Assembly: P256,477 x .26 = P 66,684 Packaging: P256,477 x .28 = P 71,813 Storeroom allocations: Maintenance: P215,907 x .03 = P 6,477 Machinery: P215,907 x .25 = P 53,977 Assembly: P215,907 x .43 = P 92,840 Packaging: P215,907 x .29 = P 62,613Total cost after allocations:
Maintenance Storeroom Machinery Assembly Packaging Direct cost P 250,000 P 180,000 P 600,000 P 892,000 P 436,000 Maintenance (256,477) 35,907 82,073 66,684 71,813 Storeroom 6,477 (215,907) 53,977 92,840 62,613 Total cost P 0 P 0 P 736.050 P1,051,524 P 570,426 F/O Rates P36.80 P29.21 P31.69 Problem 7-3 1. Producing Departments A B
Budgeted manufacturing overhead P820,000 P608,000 Service Department X to:
A (180/600 x P200,000) 60,000
B (420/600 x P200,000) 140,000
Service Department Y to:
A (128/160 x P100,000) 80,000
B ( 32/160 x P100,000) 20,000
Total P960,000 P768,000
Predetermined manufacturing overhead rates:
Department A: P960,000 / 128,000 machine hours = P7.50 per machine hour Department B: P768,000 / 200,000 DL hours = P3,84 per DLH
Overhead cost of Job 155:
Dept. A: 60 x P7.50 = P450 Dept. B: 40 x P3.84 = 154
Total cost P604
2. Total budgeted factory overhead P1,728,000 Divided by total direct labor hours ÷ 270,000
Plant-wide overhead rate P 6.40
Problem 7-4
Assembly Finishing
Factory overhead budget P1,040,000 P 800,000
Allocation of Service Department’s cost:
Maintenance: P400,000, 42:18 280,000 120,000 Administration: P300,000, 30:20 180,000 120,000 Total budgeted factory overhead P1,500,000 P1,040,000
Divided by machine hours ÷ 50,000 ÷ 40,000
Factory overhead rates P 30/hour P 26/hour
Problem 7-5 1. S1 (P20,000): Base % Allocation S2 20 .025 P 500 P1 360 .45 9,000 P2 420 .525 10,500 800 P20,000 S2 (P69,500 + P500 = P70,000): Base % Allocation P1 8,000 .57 P40,000* P2 6,000 .43 30,000* 14,000 P70,000 *rounded P1 P2
Budgeted factory overhead P400,000 P600,000
S1 cost 9,000 10,500
S2 cost 40,000 30,000
Total cost P449,000 P640,500
Divided by ÷ 8,000 ÷ 20,000
Predetermined overhead rates P 56.125 P 32.025
2. P1,089,000 / 30,000 DLH = P36.317 per DLH
3. Individual jobs may have relatively different amounts of time in each department. For example, if P1 is machine intensive and P2 is labor intensive, the departmental overhead rates would provide a fairer allocation of costs to jobs.
Problem 7-6 1. Equation 1: C = P40,000 + .20D Equation 2: D = P40,000 + .20C Equation 3: E = P20,000 + .30C + .10D Substitution: C = P40,000 + .20 (P40,000 + .20C) C = P40,000 + P8,000 + .04C .96C = P48,000 C = P50,000 D = P40,000 + .20 (P50,000) D = P40,000 + P10,000 D = P50,000 E = P20,000 + .30 (P50,000) + .10 (P50,000) E = P20,000 + P15,000 + 5,000 E = P40,000 2. Service C allocation: Service D: P50,000 x .20 = P10,000 Service E: P50,000 x .30 = P15,000 Producing B: P50,000 x .50 = P25,000 Service D allocation: Service C: P50,000 x .20 = P10,000 Service E: P50,000 x .10 = P 5,000 Producing A: P50,000 x .30 = P15,000 Producing B: P50,000 x .40 = P20,000 Service E allocation: Producing A: P40,000 x .40 = P16,000 Producing B: P40,000 x .30 = P12,000 Marketing: P40,000 x .20 = P 8,000 General office: P40,000 x .10 = P 4,000 Producing A: P120,000 + P15,000 + P16,000 = P151,000 Producing B: P180,000 + P25,000 + P20,000 + P12,000 = 237,000 Marketing = 8,000 General Office = 4,000 Total P400,000
Problem 7-7
1. Producing Department
P1 P2
Factory overhead P 40,000 P47,600
Allocation of Service Department:
S1: P14,400; ( 40% : 50%) 6,400 8,000 S2: P18,000 ; ( 20% : 40%) 6,000 12,000 Total P120,000 P52,400 2. S2 allocation (P18,000): P1: P18,000 x 20% = P 3,600 P2: P18,000 x 40% = 7,200 S1: P18,000 x 40% = 7,200 P18,000 S1 allocation (P14,400 + P7,200 = P21,600): P1: P21,600 x .40/.90 = P 9,600 P2: P21,600 x .50/.90 = 12,000 P21,600
Total manufacturing overhead after allocation:
P1: P40,000 + P3,600 + P 9,600 = P 53,200 P2: P47,600 + P7,200 + P12,000 = 66,800 Total P120,000 3. S1 = P14,400 + .40 S2 S2 = P18,000 + .10 S1 Substitution: S1 = P14,400 + .40 (P18,000 + .10 S1) S1 = P14,400 + P7,200 + .04 S1 .96S1 = P21,600 S1 = P22,500 S2 = P18,000 + .10 (P22,500) S2 = P18,000 + P2,250 S2 = P20,250 S1 allocations: S2: P22,500 x .10 = P2,250 P1: P22,500 x .40 = P9,000 P2: P22,500 x .50 = P11,250 S2 allocations: S1: P20,250 x .40 = P8,100 P1: P20,250 x .20 = P4,050 P2: P20,250 x .40 = P8,100
Total manufacturing overhead after allocation:
P1: P40,000 + P 9,000 + P4,050 = P 53,050
P2: P47,600 + P11,250 + P8,100 = 66,950
Problem 7-8 a. Administration Costs (P750,000): Base Allocation Accounting 5/146 P 25,685 Promotion 6/146 30,822 Commercial 21/146 107,877 Residential 101/146 518,835 Prop. Mgmt. 13/146 66,781 Total (rounded) P750,000 Accounting Costs (P495,000 + P25,685 = P520,685) Base Allocation Promotion P360,000 / P1,760,000 P106,504 Commercial P500,000 / P1,760,000 147,922 Residential P725,000 / P1,760,000 214,487 Prop. Mgmt. P175,000 / P1,760,000 51,772 Total (rounded) P520,685 Promotion (P360,000 + P30,822 + P106,504 = P497,326) Base Allocation Commercial P4,500,000 / P14,500,000 P154,343 Residential P9,500,000 / P14,500,000 325,834 Prop. Mgmt. P 500,000 / P14,500,000 17,149 Total P497,326 Summary of allocation: Commercial: P107,877 + P147,922 + P154,343 = P 410,142 Residential: P518,835 + P214,487 + P325,834 = P1,0549,156 Prop. Mgmt: P 66,781 + P 51,772 + P 17,149 = P 135.702
b. Commercial Residential Prop. Mgmt.
Revenues P 4,500,000 P 9,500,000 P 500,000 Direct costs (5,245,000) (4,589,510) (199,200) Allocated costs (410,142) (1,059,156) (135,702) Income (loss) P(1,155,142) P 3,851,334 P 165,098
The Residential Department is the most profitable with a return on revenues of 40.5% (P3,851,334 / P9,500,000)
Problem 7-9
a. Total EDP hours used = 1,220 + 650 + 190 = P2,060 Transfer price revenue = 2,060 x P40 = P82,400
Actual Variable EDP Costs = P90,640 = P44 transfer price Total EDP Hours Used 2,060
The P40 transfer price is inadequate because the EDP Department is left with a loss (for internal evaluation purposes) of (P90,640 – P82,400) or P8,240.
b. Allocate administration costs of P450,000 and fixed EDP costs of P300,000.
Lit FP LC Total Administration (P450,000), 10:5:3 P250,000 P125,000 P 75,000 P 450,000 EDP-Fixed (P300,000), 80:345:240:25 69,565 208,696 21,739 300,000 Total allocated P319,565 P333,696 P 96,739 P 750,000 Transfer costs 48,800 26,000 7,600 82,400 Direct costs 200,000 255,000 340,000 795,000 Total P568,365 P614,696 P444,339 P1,627,400 Problem 7-10 a. SD1 Costs (P1,065,000):
Base % Cost Allocation
SD2 20/400 0.050 x P1,065,000 = P 53,250 SD3 30/400 0.075 x P1,065,000 = 79,875 PD1 200/400 0.500 x P1,065,000 = 532,500 PD2 150/400 0.375 x P1,065,000 = 399,375 P1,065,000 SD2 Costs (P840,000 + P53,250 = P893,250):
Base % Cost Allocation
SD3 200/2,000 0.10 x P893,250 = P 89,325 PD1 800/2,000 0.40 x P893,250 = 357,300 PD2 1,000/2,000 0.50 x P893,250 = 446,625 P 893,250
SD3 Costs (P1,185,000 + P79,875 + P89,325 = P1,354,200):
Base % Cost Allocation
PD1 68/170 0.40 x P1,354,200 = P 541,280 PD2 102/170 0.60 x P1,354,200 = 812,520 P1,354,200 Summary of allocations: PD1: P3,760,000 + P532,500 + 357,300 + 541,680 = P5,191,480 PD2: P3,600,000 + P399,375 + 446,625 + P812,520 = P5,258,520
Factory overhead rates:
PD1: P5,191,480 / 400,000 = P12.98 or P13.00 per DLH
Problem 7-10 (continued):
b. # of Floor # of
Employees % Space % Hours %
PD1 200 0.57 800 0.44 68 0.40 PD2 150 0.43 1,000 0.56 102 0.60 350 1,800 170 PD1 PD2 SD1: P1,065,000 x 0.57 P 607,050 P1,065,000 x 0.43 P 457,950 SD2: P840,000 x 0.44 369,600 P840,000 x 9.56 470,400 SD3: P1,185,000 x 0.40 474,000 P1,185,000 x 0.60 711,000 Total P1,450,650 P1,639,350
Factory overhead rates:
PD1: (P3,760,000 + P1,450,650) ÷ 400,000 = P5,210,650 ÷ 400,000 =P13 per DLH
PD2: (P3,600,000 + P1,639,350) ÷ 300,000 = P5,239,350 ÷ 300,000 =P18 per DLH
c. SD1 SD2 SD3
Department Base % Base % Base %
SD1 n/a n/a 400 0.167 15 0.073 SD2 20 0.050 n/a n/a 20 0.098 SD3 30 0.075 200 0.083 n/a n/a PD1 200 0.500 800 0.333 68 0.332 PD2 150 0.375 1,000 0.417 102 0.497 400 2,400 205
E quations:
SD1 = P1,065,000 + .167 SD2 + 0.73 SD3 SD2 = P 840,000 + .05 SD1 + 0.98 SD3 SD3 = P1,185,000 + .075 SD1 + 0.83 SD2 SD1 = P1,065,000 + .167 (P840,000 + .05SD1 + .098 SD3) + .073SD3 SD1 = P1,065,000 + P140,280 + .008SD1 + .016SD3 + .073SD3 .992SD1 = P1,205,280 + .89SD3 SD1 = P1,215,000 + .09SD3 SD3 = P1,185,000 + .075SD1 + .83 (P840,000 + .05SD1 + .098SD3) SD3 = P1,185,000 + .075SD1 + P69,720 + .004SD1 + .008SD3 .992SD3 = P1,254,720 + .079SD1 SD3 = P1,264,839 + .08SD1 Substituting SD3 SD1 = P1,215,000 + .09 (P1,264,839 + .08SD1) SD1 = P1,215,000 + P113,835 + .007SD1 .993SD1 = P1,328,835 SD1 = P1,228,202Problem 7-10 (continued)
Substituting SD1 SD3 = P1,264,839 + .08 (P1,338,202) SD3 = P1,264,839 + P107,056 SD3 = P1,371,896 Substituting SD1 and SD3 SD2 = P840,000 + .05 (P1,338,202) + .098 (P1,371,896) SD2 = P840,000 + P66,910 + P134,446 SD2 = P1,041,356 Allocations: SD1 allocations: SD2: P1,338,202 x 0.050 = P66,910 SD3: P1,338,202 x 0.075 + P100,365 PD1: P1,338,202 x 0.500 = P669,101 PD2: P1,338,202 x 0.375 = P501,826 SD2 allocations: SD1: P1,041,356 x 0.167 = P173,906 SD3: P1,041,356 x 0.083 = P86,433 PD1: P1,041,356 x 0.333 = P346,772 PD2: P1,041,356 x 0.417 = P434,245 SD3 allocations: SD1: P1,371,896 x 0.073 = P100,149 SD2: P1,371,896 x 0.098 = P134,446 PD1: P1,371,896 x 0.332 = P455,469 PD2: P1,371,896 x 0.497 = P681,832 SD1 SD2 SD3 PD1 PD2 Direct costs P1,065,000 P 840,000 P 1,186,000 P3,760,000 P3,600,000 SD1 (1,338,202) 66,910 100,365 669,101 501,826 SD2 173,906 (1,041,356) 86,433 346,772 434,245 SD3 100,149 134,446 (1,371,896) 455,469 681,832 P 0 P 0 P 0 P5,231,342 P5,217,903Note: SD1, SD2, and SD3 columns are off due to rounding.
Factory overhead rates:
PD1: P5,231,341 / 400,000 = P13.08 or P13 per DLH
PD2: P5,217,903 / 300,000 = P17.39 or P17 per DLH
Given that the rates are the same using the step and direct methods and the rates are only slightly different using the reciprocal (algebraic) method, there seems in this case to be little benefit to using the complex step and algebraic methods.
Problem 7-11
1. General Factory Department Costs (P12,337):
Department Sq. Feet Percent Allocation
Storeroom 2,400 15 P 1,851 Cutting 5,600 35 4,318 Assembly 4,800 30 3,701 Finishing 3,200 20 2,467 Totals 16,000 100 P12,337 Storeroom Costs (PP8,510 + P1,851 = P10,361):
Department DLH Percent Allocation
Cutting 3,600 40 P 4,145
Assembly 2,300 25 2,590
Finishing 3,220 35 3,626
Totals 9,200 100 P10,361
Allocation of Service Department Costs to Producing Depatment
Gen. Fcty Storeroom Cutting Assembly Finishing
Direct Cost P 12,337 P 8,510 P10,192 P 8,111 P 8,796
General Factory (12,337) 1,851 4,318 3,701 2,467
Storeroom (10,361) 4,145 2,590 3,627
Totals P 0 P 0 P18,655 P14,402 P14,889
2. Manufacturing overhead – Cutting Dept. 10,192 Manufacturing overhead- Assembly Dept. 8,111 Manufacturing overhead – Finishing Dept. 8,796 Manufacturing overhead – General Fcty Dept. 12,337 Manufacturing overhead – Storeroom Dept. 8,510
Manufacturing overhead control 47,946 To close control account and record department costs
Manufacturing overhead – Cutting Dept. 4,318 Manufacturing overhead – Assembly Dept. 3,701 Manufacturing overhead – Finishing Dept. 2,467 Manufacturing overhead – Storeroom Dept. 1,851
Manufacturing overhead – Gen Fcty 12,337 To allocate General Factory Dept. costs
Manufacturing overhead – Cutting Dept. 4,145 Manufacturing overhead – Assembly Dept. 2,590 Manufacturing overhead – Finishing Dept. 3,626
Manufacturing overhead – Storeroom 10,361 To allocation storeroom costs.
