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CHAPTER 7:

Accounting for Factory


Overhead
PROBLEMS
Problem 1
The 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:
1. Factory Overhead Rate = P 255, 000/100, 000 = P 2.55/DLHr.
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 Companys 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 =


507
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 P48.86/DLHr
43.08DLHr. .

*(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 1, 250
DLHrs. DLHrs
FO rate P P48.34/DLH
43.38/DLHr 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 Companys 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)
76,000 0.80
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

2. Actual Factory Overhead P 15, 910


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.

High Low
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.
b. Prepare the end-of-period entries.
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
P 200, 750
The companys 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 departments 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
c. Theoretical or maximum 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 As 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 As 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 Bs 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
b. P1,500 overapplied
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

DSantos uses a job-order cost system with machine hours as an


overhead base. The following information relates to DSantos 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. As 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
Marvins 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, Marvins 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
Bath size 100 50
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
departments 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 Companys 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 Camilles 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
S2s 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.