M15 ACCOUNTING FOR FACTORY OVERHEAD

PROBLEMS: Factory Overhead: Planned, Actual and Applied

1. Ulysses Company estimates overhead of P225,000 for next year. An estimated 25,000 units will
be produced, with materials cost of P500,000. Conversion will require an estimated 56,250
direct labor hours at a cost of P8 per hour and an estimated 75,000 machine hours.

Required:
Compute the predetermined overhead rate to be used in applying factory overhead to
production on each of the following bases:
(a) Units of production
P225,000/ 25,000 units
= P9
(b) Materials cost
P225,000/ 500,000
= 0.45 or 45%
(c) Direct labor hours
P225,000/ 56,250
Direct Labor Hours =P4
(d) Direct labor cost
P225,000/ (56,250 Direct Labor Hours x P8)
= 0.50 or 50%
(e) Machine hours
P225,000/ 75,000
Machine Hours = P3

2. Theoretical capacity for Rolly Company is 80,000 direct labor hours, and normal capacity is
50,000 direct labor hours. The actual capacity attained for the fiscal year ended June 30, 2020
was 43,000 hours. It is estimated that 40,000 hours will be worked in 2021. Fixed Factory
Overhead is P400,000 and variable factory overhead is P6.69 per direct labor hour.

Required:
(a) Using the normal capacity, compute (a) the factory overhead rate, and (b) the fixed part of
the factory overhead rate
a. Factory overhead rate = P400,000/50,00) + 6.69
= P14.69
b. Fixed factory overhead rate = P400,000/50,000
= P8

(b) Using expected actual capacity for 2021, compute (a) the factory overhead rate, and (b)
the fixed part of the factory overhead rate.
 a. Factory overhead rate = P400,000/40,00) + 6.69
= P16.69
b. Fixed factory overhead rate = P400,000/40,000
= P10

3. Siony Company budgeted factory overhead at P255,000 for the period for Dept. A based on a
budgeted volume of 50,000 machine hours. At the end of the period, the actual factory
overhead was P281,000 and actual machine hours were 52,500

Required: Calculate the applied factory overhead and the over- or underapplied amount
for the period.
FOH rate = P255,000 / 50,000 budgeted machine hours
= P5.10
Actual factory overhead 281,000
Applied factory overhead (52,500 machine hours x P5.10 267,750
rate)
Underapplied factory overhead for the period P13,250

4. Verbo Company assembles and sells hand drills All parts are purchased and the cost of the parts
per drill total P50. Labor is paid on the basis of P32 per drill assembled. Because the company
handles only one product, the unit cost base is used for applying factory overhead at a
predetermined rate. Estimated factory overhead for the coming period based on a production
of 30,000 drills, is as follows:
Indirect Materials P220,000
Indirect Labor 240,000
Light and Power 30,000
Depreciation 25,000
Miscellaneous 55,000

During the period, actual factory overhead was P561,600 and 29,000 drills were assembled.
These units were completed but not yet transferred to the finished goods storeroom.
Required:
1. Prepare the entries to record the preceding information Dr Cr

Work in Process 1,450,000

Materials 1,450,000

(29,000 drills x P50 cost per drill)

Work in Process 928,000

Payroll 928,000

(29,000 drills x P32 labor cost per drill assembled)

 Factory Overhead Control 561,600

Actual Factory Overhead 561,600

Work in Process 551,000

Applied Factory Overhead 551,000

(29,000 drills x P19 overhead rate)

Applied Factory Overhead 551,000

Factory Overhead Control 551,000

Overhead rate = Estimated factory overhead 570,000 / Estimated production 30,000

= P19 per drill

2. Determine the amount of over-or underapplied overhead.

Underapplied factory overhead = P561,600 – 551,000
= P10,600

5. Normal annual capacity for Wicky Co. is 48,000 units, with production rates being level
throughout the year. The October budget shows fixed factory overhead of P1,440 and an
estimated variable factory overhead rate of P2.10 per unit. During October, actual output was
4,100 units, with a total actual factory overhead of P9,000.

Required: Calculate the over-or underapplied factory overhead for October.

Actual factory overhead 9,000
Applied factory overhead (4,100 units x P2.10 per unit) 8,610
Underapplied factory overhead for the period P 390

6.The following information is available concerning the inventory and cost of goods sold
accounts of XO Manufacturing Co. at the end of the year.
Work in Process Finished Goods Cost of Sales
Direct Material P2,000 P6,000 P12,000
Direct Labor 2,000 16,000 32,000
Applied Factory Overhead 2,000 16,000 32,000

Year-end balance P6,000 P38,000 P76.000

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Applied factory overhead has already been closed to Factory Overhead Control .

Required:
Give the journal entry to close Factory Overhead Control, assuming:

(a)Underapplied factory overhead of P6,000 is to be allocated to inventories and cost of goods sold in
proportion to the balances in the accounts

Work in Process (5% of P6,000) 300

Finished Goods (312/3% of P6,000) 1,900
Cost of Goods Sold (631/3%of P6,000) 3,800
Factory Overhead Control 6,000

(b) Overapplied factory overhead of P6,000 is to be allocated to inventories and cost of goods sold in
proportion to the balances of the accounts.
Factory Overhead Control 6,000
Work in Process 300
Finished Goods 1,900
Cost of Goods Sold 3,800

(c} Underapplied factory overhead of P6,000 is to be allocated to inventories and cost of goods sold in
proportion to the amounts of applied factory overhead contained in those accounts.

Work in Process (4% of P6,000) 240

Finished Goods (32% of P6,000) 1,920
Cost of Goods Sold (64% of P6,000) 3,840
Factory Overhead Control 6,000

7. Yoke Manufacturing Co. was totally destroyed by fire during June. However, the following cost data
were recovered : actual direct labor cost, P8,117; actual direct material cost, P16,550; and actual
factory overhead cost, P14,134; predetermined factory overhead rate, 200% of direct labor cost.

Required: Calculate the amount of over- or underapplied factory overhead.

Actual factory overhead 14,134

Applied factory overhead (200% of P8,117) 16,234
Overapplied factory overhead for the period P(2,100)