1

CHAPTER 6

Multiple Choice Questions  –  Theoretical

 Theoretical

1. a 6. b 11. c 16. a
2. d 7. a 12. b 17. b
3. a 8. a 13. d
4. a 9. c 14. b
5. a 10. d 15. C

Multiple Choice Questions  –  Computational

 Computational

1. (a)

P800,000 / 10,000 units = P80 per unit.

2. (a)

P800,000 / P400,000 = 200% of material cost

3. (a)

P800,000 / P600,000 = 133% of direct labor cost

cost.

4. (a)

P800,000 / 25,000* = P32 per direct labor hour.

hour.

* P600,000 / P24 = 25,000 estimated direct labor hour.’

5. (a)

P800,000 / 3.333*
3.333* = P2.40 per machine hour

 20 minutes / 60 minutes = 1/3 machine hour per unit

1/3 hour
hour per
per unit x 10,000 units = 3.333 estimated machine hours.

6. (a)

P800,000 / 12,500 units* = P64 overhead per unit.

*10,000 units / 80s% = 12,500 units.

7. (a)

P800,000 / P500,000* = 160% of material cost.

* P40 x 12,500 units

 2

8. (a)

P800,000 / (1/3 hour x 12,500 units) = P92 per machine hour.

9. (a)

Estimated overhead / Estimated units of production = Overhead per unit.

2009: P180,000 / P15 = 12,000 estimated units of production .

2010: P198,000 / P18 = 11,000 estimated units of production

10. (b)

Applied factory overhead (10,000 units x P15) P150,000

Actual factory overhead ( P50,000 + P95,000) 145,000
Overapplied overhead P 5,000

11. (b)

Actual factory overhead (P55,000 = P150,000) P205,000

Applied factory overhead (11,000 units x P18) 198,000
Underapplied overhead P 7,000

12. (a)

Actual output 4,100 units

Overhead rate:
Fixed overhead rate: P1,440 / (48,000 / 12) = P0.36
Variable overhead rate 2.10 P2.46
Applied manufacturing overhead P10,086

13. (a)

Applied manufacturing overhead P10,086

Actual manufacturing overhead 9,000
Overapplied manufacturing overhead P 1,086

14. (c)

Actual production 2,700 hours

Overhead rate:
Fixed overhead rate: (P16,920/12) ÷ (36,000/12) P0.47
Variable overhead rate 2.10 2.57
Applied manufacturing overhead P6,939

15. (c)

Actual manufacturing overhead P7,800

Applied manufacturing overhead 6,939
Underapplied manufacturing overhead P 861
 3

16. (a)

Actual manufacturing overhead P1,618,340

Applied manufacturing overhead (248,300 DLH x 6.45*) 1,601,535
Underapplied overhead P 16,805

*P1,677,000 / 260,000 DLH = P6.45 per DLH

17. (b)

Budgeted fixed overhead P 585,000

Applied fixed overhead (248,300 DLH x 2.25*) 558,675
Volume variance (U) P 26,325

*P585,000 / 260,000 DLH = P2.25 per DLH

18. (c)

Budgeted overhead”
Fixed overhead P 585,000
Variable overhead (248,300 x P4.20*) 1,042,860 P1,627,860
Actual manufacturing overhead 1,618,340
Spending variance (F) P 9,520

19. (a)

Volume variance (U) P 26,325

Spending variance (F) 9,520
Net overhead variance (U) P 16,805

20 (d)

Actual overhead:
Fixed P348,000
Variable 637,880 P985,880
Applied overhead 995,880
Overapplied overhead P 10,000

21. (b)

Budgeted fixed overhead P348,000

Applied fixed overhead (115,800 x P2.90*) 335,820
Volume variance (U) P 12,180

* P348,000 / 120,000 DLH = P2.90 per DLH

22. (b)

Budgeted overhead:
Fixed overhead P348,000
Variable (115,800 x P5.70*) 660,060 P1,008,060
Actual overhead 985,880
Spending variance (F) P 22,180

 P684,000 / 120,000 DLH = P5.70 per DLH

 4

23. (b)

Volume variance (U) P12,180

Spending variance (F) 22,180
Total variance (F) P10,000

24. (b)

Sales P790,670
Cost of goods sold:
Finished goods, July 1, 2009 P 33,500
Cost of goods manufactured 450,700
Total available 484,200
Finished goods, June 30, 2010 83,000
Cost of goods sold 401,200
Underapplied overhead 4,200 397,000
Gross profit 393,670
Operating expenses 157,500
Net income (loss) P236,170

25. (b)

Fixed factory overhead:

Heat and light P 54,900
Depreciation 793,000
Taxes and insurance 300,500
Total P1,148,400

Variable factory overhead:

Indirect labor P 240,000
Employee benefits 90,000
Supplies 60,000
Power 48,000
Total P 438,000

Fixed overhead rate (P1,148,400 / 220,000 DLH) P 5.22 per DLH

Variable overhead rate (P438,000 / 60,000 DLH) 7.30 per DLH
Total factory overhead rate per DLH P 12.52
Actual DLH, 2011 220,000
Estimated total factory overhead for next year (2011) P2,754,400

26. (c)

Fixed overhead rate (P1,200,000 / 240,000 machine hrs.) P 5

Variable overhead rate (P2,400,000 / 240,000 machine hrs.) 10
Predetermined overhead rate P15

27. (b) 21,000 machine hours x P15

28. (b)

Applied variable overhead (21,000 x P10) P210,000

Actual variable overhead 214,000
Underapplied variable manufacturing overhead P 4,000
 5

29. (c)

Actual variable overhead P214,000

Budgeted variable overhead (21,000 hrs. x P10) 210,000
Variable spending variance (U) P 4,000

30. (c)

Budgeted fixed overhead P100,000

Applied fixed overhead (21,000 hrs. x P5) 105,000
Volume variance (F) P 5,000
 6

PROBLEMS

Problem 6-1

(1) Work in process 22,040,000

Applied factory overhead 22,040,000
To record applied factory overhead
(P22,800,000 / 1,200,000 mixers) x 1,160,000

Factory overhead control 22,384,000

Various credits 22,384,000
To record actual factory overhead incurred.

(2) Actual factory overhead P22,384,000

Applied factory overhead 22,040,000
Underapplied factory overhead P 344,000

Problem 6-2

1.  Work in process inventory 400

Finished goods inventory 2,533
Cost of goods sold 5,067
Underapplied overhead 8,000
To allocate underapplied overhed to inventories
and cost of goods sold computed as follows:

Work in process (P12,000 / P240,000) x P8,000 = P 400

Finished goods (P76,000 / P240,000) x P8,000 = 2,533
Cost of goods sold (P152,000 / P240,000) x P8,000 = 5,067

2. Overapplied overhead 8,000

Work in process inventory 400
Finished goods inventory 2,533
Cost of goods sold 5,067
To close overapplied overhead to inventories
and cost of goods sold.

3. Cost of goods sold 10,000

Underapplied overhead 10,000
To close underapplied overhead to cost of goods sold.

4. Work in process inventory 400

Finished goods inventory 3,200
Cost of goods sold 6,400
Underapplied overhead 10,000
To close underapplied overhead to inventories
and cost of goods sold, computed as follows:

Work in process (P4,000 / P100,000) x P10,000 = P 400

Finished goods (P32,000 / P100,000) x P10,000 = 3,200
Cost of goods sold (P64,000 / P100,000) x P10,000 = 6,400
 7

Problem 6-3

(a) Work in process 630,000

Materials (18,000 x P15) 270,000
Factory payroll (18,000 x P17) 306,000
Applied factory overhead (18,000 x P3*) 54,000
To record materials, labor and overhead charged
Production. Factory overhead control may also
 be credited instead of Applied factory overhead.

* (P22,000 + P16,000 + P7,000 + P5,000 + P10,000) / 20,000 = P3

Factory overhead control 56,500

Various credits 56,500
To record actual factory overhead incurred.

Applied factory overhead 54,000

Underapplied overhead 2,500
Factory overhead control 56,500
To record underapplied overhead.

Alternative entry if applied factory overhead is not used.

Underapplied overhead 2,500
Factory overhead control 2,500

(b) Cost of goods sold 2,500

Underapplied overhead 2,500
To close underapplied overhead to cost of goods
sold.

Problem 6-4

1. Actual overhead (P283,400 + P647,426.67) P930,826.67

Applied overhead (168,630 hrs. x P5.49) 925,778.70
Underapplied overhead P 5,047.97

2. Volume variance:
Fixed overhead applied (168,630 x P1.65*) P278,239.50
Fixed overhead budgeted 272,250.00
Volume variance (F) P 5,989.50

*P272,250 / 165,000 = P1.65

 Spending vari ance:

Actual overhead per year P930,826.67
Budgeted overhead:
Fixed P272,250.00
Variable (168,630 x 3.84*) 647,539.20 919,789.20
Spending variance (U) P 11,037.47

*P633,600 / 165,000 = P3.84

Total variance (U) P 5,047.97
 8

Problem 6-5
Elena Machinery Corporation
Income Statement
Year Ended December 31, 2010

Sales P960,500
Sales returns and allowances 43,700
 Net Sales 916,800
Cost of goods sold:
Finished goods inventory, 1/1 P98,700
Cost goods manufactured 641,100
Total available 739,800
Finished goods inventory, 12/31 94,500
Cost of goods sold 645,300
Add overapplied overhead 3,500 648,800
Gross profit 268,000
Operating expenses:
Selling expense P 65,400
Administrative expenses 82,500 147,900
 Net income before income tax 120,100
Provision for income tax 36,030
 Net income after income tax P 84,070

Problem 6-6

1. Fixed manufacturing overhead P 7,500

Variable manufacturing overhead [(P60,000/12) x P7.50] 37,500
Budgeted manufacturing overhead for the month P 45,000

2. Fixed overhead rate (P7,500 / 5,000 units/mo.) P 1.50

Variable overhead rate 7.50
Total overhead rate P 9.00
Actual output 4,800
Applied manufacturing overhead P 43,200

3. Actual manufacturing overhead P 46,500

Budgeted factory overhead 45,000
Controllable overhead variance (U) P 1,500

Applied manufacturing overhead P 43,200

Budgeted manufacturing overhead 45,000
Volume variance ((U) P 1,800

4. Controllable overhead variance (U) P 1,500

Volume variance (U) 1,800
 Net overhead variance (U) P 3,300

Or:

Actual overhead incurred P 46,500

Applied overhead 43,200
Underapplied overhead P 3,300
 9

Problem 6-7

1. Fixed overhead P 16,920

Variable overhead (36,000 DLH x P6.30) 226,800
Budgeted manufacturing overhead P243,720

2. Fixed overhead rate (P16,920 / 36,000 hrs.) P 0.47

Variable overhead rate 6.30
Total overhead rate P 6.77
Actual DLH 2,700
Applied manufacturing overhead P 18,279

3. Actual manufacturing overhead P 23,877

Budgeted manufacturing overhead:
Fixed overhead (P16,920 / 12) P 1,410
Variable (2,700 DLH x P6.30) 17,010 18,420
Controllable variance (U) P 5,457

Fixed overhead applied (2,700 DLH x .47) P 1,269

Fixed overhead budgeted (16,920 / 12) 1,410
Volume variance (U) P 141

4 Controllable variance (U) P 5,457

Volume variance (U) 141
 Net variance (U) P 5,598

Or:

Actual overhead P 23,877

Applied overhead 18,279
Underapplied overhead P 5,598

Problem 6-8

1. Fixed overhead rate (P900,000 / 150,000 machine hours ) P 6.00

Variable overhead rate (P450,000 / 150,000 machine hours) 3.00
Total manufacturing overhead rate P 9.00

2. Actual manufacturing overhead P1,305,000

Applied manufacturing overhead (140,000 hrs. x P9.00) 1,260,000
Underapplied overhead P 45,000

3. Actual manufacturing overhead P1,305,000

Budgeted manufacturing overhead (based on actual hrs.)
Fixed overhead P900,000
Variable (140,000 hrs. x P3) 420,000 1,320,000
Controllable variance (F) P 15,000

4. Applied fixed overhead (140,000 hrs. x P6) P 840,000

Budgeted fixed overhead 900,000
Volume variance (U) P 60,000
 10

Problem 6-9

1, Fixed overhead rate (P42,000 / 60,000 DLH) P 0.70

Variable overhead rate (P168,000 / 60,000 DLH) 2.80
Total overhead rate P 3.50

2. Actual direct labor hours 62,400

Overhead rate X P3.50
Applied overhead P218,400

3. Actual manufacturing overhead P213,100

Applied manufacturing overhead 218,400
Overapplied overhead (F) P 5,300

4.  Fixed overhead volume variance:

Applied fixed overhead (62,400 x .70) P 43,680
Budgeted fixed overhead 42,000
Volume variance (F) P 1,680

Spending variance:
Actual overhead P213,100
Budgeted overhead based on Std. hours:
Fixed overhead P 42,000
Variable (62,400 x P2.80) 174,720 216,720
Controllable variance (F) P 3,620

Problem 6-10

a. Actual manufacturing overhead P 60,000

Budgeted manufacturing overhead 64,000
Controllable variance (F) P 4,000

Applied manufacturing overhead P 58,000

Budgeted manufacturing overhead 64,000
Volume variance (U) P 6,000

b. Applied manufacturing overhead P 30,000

Volume variance (F) 14,000
Budgeted manufacturing overhead 16,000
Controllable variance (F) 2,000
Actual manufacturing overhead P 18,000

c. Actual manufacturing overhead P 48,000

Controllable variance (U) 12,000
Budgeted manufacturing overhead 36,000
Applied manufacturing overhead 48,000
Volume variance (F) P 12,000
 11

d. Budgeted manufacturing overhead P 36,000

Controllable variance (F) 2,000
Actual manufacturing overhead P 34,000

Budgeted manufacturing overhead P 36,000

Volume variance (F) 4,000
Applied manufacturing overhead P 40,000

e. Actual manufacturing overhead P 36,000

Controllable variance (F) 6,000
Budgeted manufacturing overhead 42,000
Applied manufacturing overhead 40,000
Volume variance P 2,000

f. Actual manufacturing overhead P 54,000

Controllable variance (U) 12,000
Budgeted manufacturing overhead 42,000
Volume variance (U) 4,000
Applied manufacturing overhead P 38,000

g. Actual manufacturing overhead P 32,000

Controllable variance -0-
Budgeted manufacturing overhead 32,000
Applied manufacturing overhead 32,000
Volume variance P -0-

Problem 6-11

1. Work in process, Oct. 1 P109,000

Current cost:
Direct materials 90,000
Direct labor (P204,000 x 7/17) 84,000
Applied overhead (7,000 P9) 63,000
Total cost of Job 20 P346,000

2. 4,000 DLH x P9 = P 36,000

3. 17,000 total direct labor hours x P9 = P153,000

4. Supplies P 4,000
Indirect labor 30,000
Supervisory salaries 83,000
Building occupancy costs 7,000
Factory equipment costs 12,000
Other factory costs 10,000
Total actual manufacturing overhead P150,000

5. Close to cost of goods sold account.

6, No. The amount should be apportioned to the Work in Process Inventory

account, Finished Goods Inventory account and Cost of Goods Sold.
 12

Problem 6-12

1. Indirect materials and supplies P 30,000

Indirect labor 106,000
Employee benefits 46,000
Depreciation 24,000
Supervision 40,000
Total actual manufacturing overhead P246,000

2. P140,000 actual direct labor cost x 160% = P224,000

3. Actual manufacturing overhead P246,000

Applied manufacturing overhead 224,000
Underapplied overhead P 22,000

Problem 6-13

1. Work in Process Finished Goods

Direct materials P 18,000 P 20,000
Direct labor 36,000 40,000
Applied overhead:
WIP (4,000 hours x P7.20) 28,800
FG (10,000 hours x P7.20) 72,000
Total inventory cost P 82,800 P132,000

2. Supervision P 37,000
Indirect labor 58,100
Utilities 45,600
Depreciation – factory building 15,000
Property tax 8,000
Freight-in 13,000
Depreciation – factory equipment 15,000
Insurance 6,000
Repairs and maintenance 16,500
Miscellaneous 19,800
Total actual manufacturing overhead P234,000

3. Actual manufacturing overhead P234,000

Budgeted manufacturing overhead (P141,750 + P85,050) 226,800
Controllable variance (U) P 7,200

Budgeted manufacturing overhead P226,800

Applied manufacturing overhead 230,400
Volume variance (F) P 3,600

 Net overhead variance (U) P 3,600

 13

Problem 6-13 (continued)

 Manuel Company
Statement of Cost of Goods Manufactured and Sold
 Month Ended January 31, 2010

Direct materials used:

Materials inventory, Jan. 1 P 42,000
Purchases (P216,000 – P10,100) 205,900
Total available 247,900
Materials inventory, Jan. 31 18,000 P 229,900
Direct labor 512,000
Applied manufacturing overhead 230,400
Manufacturing cost 972,300
Work in process inventory, Jan. 1 65,000
Total cost of goods placed in process 1,037,300
Work in process inventory, Jan. 31 82,800
Cost of goods manufactured 954,500
Finished goods inventory, Jan. 1 36,000
Goods available for sale 990,500
Finished goods inventory, Jan. 31 132,000
Cost of goods sold at normal 858,500
Underapplied overhead 3,600
Cost of goods sold at actual P 862,100