CHAPTER 7 - ACCOUNTING FOR FACTORY OVERHEAD

Problem 1 – Denmark Company

FO rate = 216,000 216,000 216,000 216,000 216,000
90,000 72,000 units 1,600 MHrs. 240,000 48,000 DLHrs/

249%of DMC P3.00/unit P135/MHr. 90% of DLC P4.50/DLHr.

Problem 2 - Colossal Corporation

FO rate = 207,000 207,000 207,000 207,000 207,000
500,000 52,100 units 69,000 MHrs. 85,000 DLHrs. 765,000

41,40%of DMC P3,97/unit P3.00/MHr P2.44/DLHr. 27.06%ofDLC

Problem 3 – Manila Company

1. FO rate = P67,500/15,000 DLHrs. = P 4.50/DLHr.

2. Applied FO = 16,000 Hrs. x P4.50 = P 72,000

3. Actual FO P 69,000
Less: Applied 72,000
Overapplied FO ( P 3,000)

Problem 4 - Ellery Corporation

1. Job 123 Job 124 Job 125 Job 126
Direct labor cost 600 940 1,400 5,120
FO rate 180% 180% 180% 180%
Applied FO 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

1. Direct method
P1___ P2___ S1___ S2___
Direct cost P 90,000 P 60,000 P 20,000 P 32,000
Allocated cost
S1 10,000 10,000 ( 20,000)
S2 20,000 12,000 ( 32.000)
Total P120,000 P 82,000
Base 50,000 MHrs. 20,000 DLHrs
FO rate P 2.40/MHr. P 4.10/DLHr.
2. Step method
P1___ P2___ S1____ S2___
Direct cost P 90,000 P 60,000 P 20,000 P 32,000
Allocated cost
S1 2,000 2,000 ( 20,000) 16,000
S2 30,000 18,000 ( 48,000)
Total P122,000 P 80,000
Base 50,000 MHrs. 20,000 DLHrs
FO rate P 2.44/MHr P 4.00/DLHr.

3. Algebraic method
P1___ P2___ S1___ S2____
Direct cost P 90,000 P 60,000 P 20,000 P 32,000
Allocated
S1 3.143 3,143 ( 31,429) 25,143
S2 28,572 17,143 11,429 ( 57,143)
Total P121,715 P80,286
Base 50,000 MHrs. 20,000 DLHrs
FO rate P 2.43/MHr. P 4.0/DLHr.

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 – ABC Company

1. Direct method
Machinery Assembly Repair___ Cafeteria
Direct cost P 52,500 P 48,000 P 14,000 P 11,000
Allocated cost
S1 5,600 8,400 ( 14,000)
S2 6,325 4,675 ( 11.000)
Total P 64,625 P 61,075
Base 1,500DLHrs. 1,250 DLHrs
FO rate P 42.95DLHr. P48.86/DLHr.
2. Step method
Machinery Assembly Repair Cafeteria
Direct cost P 52,500 P 48,000 P 14,000 P 11,000
Allocated cost
S1 4,119 6,176 ( 14,000) 3,705
S2 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/DLHr.

Problem 7 - Central Parkway Corp.

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

95,000 Mach. Hrs.

Total Per Mach.Hr.
Fixed 34,200 0.36 ( 34,200/95,000)
Variable 41,800 0.44 ( 41,800/95,000)
76,000 0.80

1. Actual factory overhead P 78,600

Less: Applied (100,000 x .80) 80,000
Overapplied factory overhead ( 1,400)
2. Actual factory overhead P 78,600
Less: Budget allowed on actual hours
Fixed 34,200
Variable (100,000 x .44) 44,000 78,200
Spending variance – unfavorable P 400

3. Budged allowed on actual hours P 78,200

Less: Applied factory overhead 80,000
Idge capacity variance favorable ( 1,800)

Problem 9 - Abner Company

72,000 units
Total- Per unit
Fixed P 33,840 P 0.47 (33,840/72,000)
Variable 302400 4.20 (72,000 x 4.20)
Total P336,200 P 4.67

1. Actual FO P 15,910
Less: Applied FO 5,400 units x P 4.67 25,218
Underapplied FO (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 P25,500

Less: Applied 25,218
Idle capacity variance – unfavorable P 282

Problem 10 - Norman Corporation

1. Variable rate/hour = 270,000 – 252,000
60,000 - 48,000

= P1.50/DLHr.

2. High Low
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
2. Actual factory overhead 273,000
Less: Applied ( 60,000 x 90%) x 5.25 283,500
Overapplied FO ( 10,500)

FO rate = 252,000 = 5.25/ DLHrs.

48,000

3. Actual factory overhead 273,000

Less: Budget allowed on actual hours
Fixed 180,000
Variable (54,000 x 1.50) 81,000 261,000
Spending variance 12,000

4. Budget allowed on actual hours 261,000

Less: Applied 283,500
Idle capacity variance ( 22,500)

Problem 11 – Strawberry Corporation

Actual factory overhead 30,500
Less: Applied factory overhead 39,700
Overapplied factory overhead – favorable ( 9,200)

a. Allocation of overapplied factory overhead

Cost of goods sold 32,000/39,700 x 9,200 = 7,416

Finished goods inventory 4,200/39,700 x 9,200 = 973
Work in process inventory 3,500/39,700 x 9,200 = 811
39,700 9,200

b. Applied factory overhead 39,700

Cost of goods sold 7,416
Finished goods inventory 973
Work in process inventory 811
Factory overhead control 30,500

Problem 12
a) 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 ours = P 25/DLHr.

b)
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) 537,50 ( 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
1. True 6. True 11. False
2. False 7. True 12. False
3. True 8. True 13. True
4. True 9. False 14. True
5. True 10. True 15. 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 21. A 31. d
2. d 12. d 22. A 32. c
3. c 13. d 23. b
4. d 14. a 24. c
5. c 15. b 25. d
6. c 16. c 26. a
7. c 17. c 27. b
8. c 18. c 28. c
9. c 19. b 29. C
10. a 20. a 30. 163,706

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