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## Direct materials and direct labor P120,000

Factory overhead P400 x 150 60,000
Total manufacturing cost P180,000

Overhead rate per hour (P60,000 ÷ 24,000) P2.50
Budgeted overhead (25,000 x P2.50) P62,500

Total number of hours: (1,000 x 3) + (3,000 x 1) 6,000
Overhead cost per hour (P360,000 ÷ 6,000) P 60
Overhead charged per unit of product A: 3 hrs. x P60 P180

Labor-related overhead: (P360,000 x 0.40) P144,000
Total number of labor hours: (1,000 x 6) + (3,000 x 4) 18,000
Labor-related overhead per DLH: (P144,000 ÷ 18,000) P 8

Machine-related overhead: (P360,000 x 0.6) P216,000
Total number of machine hours (1,000 x 3) + 3,000 6,000
Machine-related OH per MH: (P216,000 ÷ 6,000) P36

## Overhead applied per unit of Product B:

Labor-related (4 hours x P8) P32
Machine-related (1 x P36) 36

The overhead is broken down into two volume-based cost pools. This is a more modified example of

Batch related costs: (360,000 + 140,000) × 20% P100,000
Batch related costs, Product A: 100,000 × 40% 40,000
Batch-related overhead per unit of Product A: 40,000 / 1,000 P 40
In ABC costing, there is no need to make a distinction between manufacturing and non-manufacturing costs in
computing the relevant product costs

Product-related overhead cost (360,000 + 140,000) × 30% P150,000
Product-related overhead cost, Product A: 150,000 × 20% P 30,000
Product-related overhead cost per unit, Product A: 30,000 / 1,000 P 30

Predetermined fixed overhead (P450,000 ÷ 150,000) 3.00
Applied overhead (156,000 hours x P4.50) 702,000
Total overhead variance, favorable P 4,500
Applied overhead 38,000 x P2 P76,000

## Overhead rate per direct labor hour (P800,000 ÷ 400,000) P2.00

Gross Profit:
2006: (25,000 x 10) - 175,000 = P75,000
2007: (25,000 x 10) - 195,000 = P55,000

2006: 60,000/30,000 = P2.00
2007: 60,000/20,000 = P3.00

Unit Costs:
2006: 5 + 2 = P7.00
2007: 5 + 3 = P8.00

## Costs of goods sold:

2006: 25,000 x P7 P175,000
2007: (5,000 x P7) + (20,000 x P8) P195,000
Note: In 2007 the company has a beginning inventory of 5,000 units at unit cost of P7.

Materials cost (2,500 x P10) P25,000
Conversion cost (2,500 x 0.4 x P30) 30,000
Total costs of Work in Process P55,000

The amount of overhead applied to production should be 80 percent of direct labor cost (P180,000 x 0.80) =
P144,000

Completed units 20,000
Work in process, End (5,000 x 0.6) 3,000
Total equivalent units, average 23,000

Units completed and transferred out 23,000
Work in Process, End 3,000

## Materials Conversion Costs

% of Completion EUP % of Completion EUP
Completed units 100 23,000 100.00 23,000
WIP - End 100 3,000 33.33 1,000
Weighted-Average EUP 26,000 24,000

Computation of equivalent units
Material J Material P
Work-in-process, Nov. 1 - 15,000
Units started and completed 35,000 35,000
Work-in-process, Nov. 30 25,000 -
EUP 60,000 50,000

Work in process-beginning
Cost, Nov. 1 P218,000
Cost, November
Material P (15,000 x P5) 225,000
Conversion 7,500 x P5 37,500 262, 500 P 480,500
Started, completed 35,000 P32
1,120,000
Cost of goods transferred out
P1.600,500
Unit Costs
Material J 720,000/60,000 P12
Material P 750,000/50,000 15
Conversion costs 300,000/60,000 5
Total P32

Equivalent units for April 64,000
Less: EU – started and completed during:
April 50,000
Work-in-process, end
(24,000 x 3) 7,200 57,200
Equivalent units - work-in-process end Mar 31 6,800
Number of units in process as of
March 31 6,800  40 17,000

Equivalent units – FIFO 64,000
Add equivalent units in March 31 (17,000 x .6) 10,200
Weighted Average EUP 74,200

The number of units to be accounted should be the sum of the units in beginning work in process and the
number of units that have been started during the period

EUP:
Transferred out to Packaging Dept. 59,250
In process, end 15,750 x 1/3 5,250
Total 64,500
Unit Cost:
Transferred in 2.70
Total 4.06
Cost of finished goods transferred out 59,250 x 4.06 P240,555

Equivalent units
Alpha Beta
Transferred to F.G. 14,000 14,000
End Process 4,000 4,000
Normal lost units 900 0
Abnormal lost unit 1,100 0
Total 20,000 18,000
Unit cost
Alpha P26,800  20,000 = P1.34
Beta P22,500  18,000 = P1.25

Equivalent units Alpha Beta
Transferred to F.G. 14,000 14,000
End Process 4,000 4,000
Normal lost units 900
Abnormal lost unit 1,100 ______
Total 20,000 18,000

Total lost units (20,000 – 18,000) 2,000
Total lost units 5% x 18,000 900
Abnormal lost units 1,100

Completed and transferred out 9,000
Units in work-in-process, End (3,000 x 100%) 3,000
Equivalents units of production - Materials 12,000
Materials cost per EUP (P60,000 ÷ 12,000) P5.00

Total lost units (21,000 – 20,000) 1,000
Less normal lost units 5% of 14,000 700
Abnormal lost unit 300

Beginning materials inventory P 20,000
Total cost of materials available for use 160,000
Deduct Materials inventory, End 10,000
Cost of materials used P150,000

Direct materials used P150,000
Direct labor 160,000