DEPARTMENTALIZATION OF FACTORY OVERHEAD - EXERCISES:

Exercise 1.

Producing and Service Departments

State whether each of the following departments is classifiable as producing or as service

a Toolroom SERVICE
b Materials Receiving SERVICE
c Cost Accounting SERVICE
d Production Planning PRODUCING
e Assembly PRODUCING
f Carpentry PRODUCING
g Mixing PRODUCING
h Extracting PRODUCING
i Production Control SERVICE
j Cutting PRODUCING
k Maintenance SERVICE
l Painting and Varnishing PRODUCING
m Repacking PRODUCING
n Personnel SERVICE

Exercise 2.

Direct and Indirect Departmental Expenses

Classify the following items into direct and indirect departmental expenses:

a Superintendence INDIRECT NO. OF EMPLOYEES

b Supervision DIRECT
c Repairs and maintenance DIRECT
d General factory expenses INDIRECT EQUALLY
e Electric power (with departmental meters) DIRECT
f Light expense (without departmental meters) INDIRECT KILOWATT
g Depreciation – Machinery and equipment ( with departmental lists) DIRECT
h Depreciation – Furniture and fixtures (without departmental lists) INDIRECT
VALUE OF FURNITURE AND FIXTURES
i Depreciation – Building INDIRECT SQUARE FOOTAGE
j Indirect materials DIRECT
k Indirect labor DIRECT
l Plant security INDIRECT NO. OF EMPLOYEES;
VALUE OF MACHINERY AND EQUIPMENT/ FLOOR AREA
m Labor fringe benefits DIRECT

Exercise 4:
Distribution Bases for Indirect Departmental Expenses
For each of the items classified as indirect departmental expenses in exercise 3, state the base or
bases often used in its distribution.
 MULTIPLE CHOICE

1. The Bohol Mfg. Co. provided you with the following data taken prior to the distribution of
service department expenses:
Departmental Overhead Prior to Service Provided by
Distribution of Service Department Exp. Dept X Dept Y
Dept M P 30,000 50% 60%
Dept P 20,000 40 20
Dept X 5,750 20
Dept Y 8,000 10
The bases used for factory overhead rates are 10,000 direct labor hours and P 25,000 labor cost
for Dept M and Dept P, respectively.
The respective overhead rates for Dept M and Dept P must be:
a P 3.77 and 95% c P 3.00 and 80%
b P 3.90 and 99% d Answer not given

Solution:
PRODUCING DEPT SERVICE DEPT
DEPT M DEPT P DEPT X DEPT Y
DFOH BEFORE DIST OF SDC 30,000 20,000 5,750 8,000
DIST OF SDC
DEPT X 3,750 3,000 (7,500) 750
DEPT Y 5,250 1,750 1,750 (8,750)
DFOH AFTER DIST OF SDC 39,000 24,750
DEPT BASE
DIRECT LABOR HOURS 10,000
LABOR COST 25,000
DEPT FOH RATES 3.90 99%

SUPPORTING COMPUTATIONS
X = 5,750 + .20 Y
Y = 8,000 + .10 X
Y = 8,000 + .10 (7,500)
Y = 8,750

X = 5,750 + .20 (8,000 + .10Y)

X = 5,750 + 1,600 + .02 X
.98 X = 7,350
X= 7,500

2. The departmental rates in Kamagong Manufacturing Co. are as follows:

Department A: P 5 per labor hour
Department B: 20% of direct labor cost
Department C: P 8 based on 20,000 machine hours

Normal capacities are 30,000 labor hrs. (Dept A), P 400,000 labor cost (Dept B), and 20,000
machine hours (Dept C).

An analysis of the estimated expenses of each producing department shows

Dept A Dept B Dept C
Fixed expenses P 30,000 P 25,000 P 20,000
Charged by service departments 45,000 30,000 60,000
 What must be the variable overhead rate in each of the three producing departments?
Dept. A Dept B Dept C
Per labor hour Per peso of labor cost Per machine hour
a P 4.00 P 13.75 P 7.00
b P 4.00 13.75% P 7.00
c P 1.50 P 7.50% P 3.00
d None of the above

Solution:
DEPT A DEPT B DEPT C
DEPT FOH RATE P 5.00 20% P8

DEPT. FOH 150,000 80,000 160,000

FIXED EXP 30,000 25,000 20,000
VAR EXP 120,000 55,000 140,000
BASE 30,000 400,000 20,000
VAR RATE P 4.00 13.75% P 7.00

3. Use the data given in No.3 above and assume that actual capacity and actual factory overhead
per producing departments (after distribution of service department expenses) were as
follows:
Actual Factory Overhead
Department A: 32,000 labor hours P 152,000
Department B: P 388,000 direct labor cost 95,000
Department C: 21,500 machine hours 168,000
How much is the underapplied (overapplied) factory overhead variance inn each department?
Dept. A Dept B Dept C
a P 8,000 P ( 17,400) P 4,000
b (8,000) 17,400 (4,000)
c 5,400 (8,000) 17,400
d None of the above

Solution:

DEPT DEPT DEPT

A B C

ACTUAL FACTORY OVERHEAD 152000 95000 168000

APPLIED FACTORY OVERHEAD 160000 77600 172000
-8000 17400 -4000

4. Based on the data given in no. 3, how much must be the total production cost of job no. 35 on
which the following data are given?
Job No. 35
Dept A Dept B Dept C
Direct materials cost P 9,000 P 8,000 P 7,500
Direct labor cost P 2,500 P 2,800 P 2,900
Direct labor hours 110 130 145
Machine hours 10 20 70
 a P 34,370
b P 32,700
c P 37,065
d Answer not given

Solution:

DEPT DEPT DEPT

A B C TOTAL
DIRECT MATERIAL COST 9000 8000 7500 24500
DIRECT LABOR COST 2500 2800 2900 8200
FACTORY OVERHEAD
DEPT A 550 550
DEPT B 560 560
DEPT C 560 560
1670

34370
Items 5 to 7:

The Siquijor Mfg. Co. has three producing departments (X,Y and Z) and two service departments (M
and P). The total estimated departmental expenses for 2013 before distribution of service
department expenses are:

Department X P 90,000
Department Y 120,000
Department Z 80,000
Department M 28,000
Department P 36,000
The bases used for departmental rates and distribution of service department expenses are given
on the next page:
Department X Machine hours
Department Y Direct labor hours
Department Z Direct labor cost
Department M Space occupied
Department P No.of employees
The factory survey at the beginning of 2013 shows:
Floor Area #.of employees Estimated DLH Estimated MH Estimated DLC
Dept X 300 27 40,000 30,000 P 650,000
Dept Y 300 30 50,000 15,000 900,000
Dept Z 200 23 30,000 10,000 500,000
Dept M 100 6
Dept P 100 5
5. What should be the departmental overhead rates assuming that service department expenses
were distributed to other departments?
Department X Department Y Department Z
Per machine hour Per labor hour Per peso of labor cost
a P 3.76 P 2.88 P .19
b P 2.88 P 3.76 P .20
c P 4.00 P 3.00 P .20
d None of the above
6. What would be your answer in No. 6 if the service department expenses were distributed
directly to the producing departments?
Department X Department Y Department Z
Per machine hour Per labor hour Per peso of labor cost
a P 3.76 P 2.88 P .19
b P 2.88 P 3.76 P .20
c P 4.00 P 3.00 19%
d None of the above
 7. How much should be the total expenses of departments M and P under the algebraic approach?
a. P 34,400 and P 38,400, respectively
b. P 30,750 and P 39,417, respectively
c. P 30,782 and P 39,420, respectively
d. None of the above

Solutions:
Siquijor Manufacturing co.
Distribution of Estimated Factory Overhead
and Computation for Departmental Factory Overhead Rates
For the Year 2013
Producing departments Service departments
Cost Accounts Distribution Total Dept X Dept Y Dept Z Dept M Dept P
Basis
Total estimated departmental P 354,000 P 90,000 P 120,000 P 80,000 P 28,000 P 36,000
expenses before distribution of
service department expenses

Distribution of service dept

expenses:
Dept M Space occupied 12,000 12,000 8,000 4,000
(36,000)
Dept P No. of employees 10800 12000 9200 (32,000)
Total estimated departmental 354,000 112,800 144,000 97,200 -
expenses after distribution of -
service department expenses
Bases
Machine hours 30000
Direct labor hours 50000
Direct labor cost 500000
Departmental factory overhead 3.76
2.88 0.19

Siquijor Manufacturing co.

Distribution of Estimated Factory Overhead
and Computation for Departmental Factory Overhead Rates
For the Year 2013

Producing departments Service departments

Cost Accounts Distribution Total Dept X Dept Y Dept Z Dept M Dept P
Basis

Total estimated departmental P 354,000 P 90,000 P 120,000 P 80,000 P 28,000 P 36,000

expenses before distribution of
service department expenses

Distribution of service dept

expenses:
Dept M Space occupied 13,500 13,500 9,000
(36,000)
Dept P No. of employees 9450 10500 8050 (28,000)
Total estimated departmental 354,000 112,950.00 144,000 97,200 -
expenses after distribution of -
service department expenses
Bases
Machine hours 30000
Direct labor hours 50000
Direct labor cost 500000
Departmental factory overhead 3.765 2.88 0.19

MULTIPLE CHOICE # 7
SOLUTION:
Equation 1 M = 28000+6/86P
Equation 2 P = 36000+1/9M
M = 28000 + 6/86 (36000 + 1/9M) P = 36,000 + 1/9 M
M = 28000 + 6/86 (36000 + 1/9M) P = 36,000 + 1/9 (30750)
M = 28000 + 2511.6279 + 0.007751938M P = 36000 + 3416.67
0.9922481M = 30511.6279 P = 39,417.00
M = 30,750.00