Cost Accounting and Control 2019 Edition

Problem and Solutions

CHAPTER 3 – ACCOUNTING FOR FACTORY LABOR

Ex 3-1. Journalizing payroll

The net earnings of the factory workers for Dainty Company during the month of November 2019 are P90,000. The
employees’ withholding taxes are P9,000, SSS are P5,000 and other deductions are P2,000. Employer’s share of SSS
are P8,000. Of the total cost of factory labor, Of the total cost of factory labor, 90% is related to direct labor and 10% is
attributable to indirect labor.

Required: Give the entry to record the payroll.

Gross Pay 106,000 Factory Payroll 106,000

Others (2,000) Withholding Tax Payable 2,000
SSS (5,000) SSS Payable 5,000
Withholding Tax (9,000) Other Payables 9,000
Net Pay 90,000 Cash / Salaries Payable 9,000

Work in Process 95,400

Factory Overhead 10,600
Factory Payroll 106,000

Factory Overhead 8,000

SSS Payable 8,000

Ex 3-2. Payroll computation with overtime

PBB Company employs 5 workers in 6am to 2pm shift who earns P200 per hour. The 2 nd shift workers working from 2pm
to 10pm, earns the regular rate plus 5% shift premium plus 10% overtime premium for hours in excess of 8 hours. The 3 rd
shift workers working from 10pm to 6am earns the regular rate plus 5% shift premium and 10% night premium. All the
workers are direct laborers. WHT are deducted weekly.

Hours worked
6am – 2pm Mon Tues Wed Thurs Fri
Tibo 8 8 8 8 4
Jason 8 8 8 8 8

2pm – 10pm
Rica 8 8 8 8 8
Princess 5 8 8 8 8

10pm – 6am
Bianca 8 8 8 8 8
Toni 8 8 8 8 8

Required: Prepare the payroll for the week and give all journal entries to record the payroll with supporting computations,
if necessary.
Cost Accounting and Control 2019 Edition
Problem and Solutions

Tibo Jason
Gross Pay 7,200 Gross Pay 8,000
Withholding Tax (478.4) Withholding Tax (653.92)
Net Pay 6,721.60 Net Pay 7,346.08

Gross Pay: Gross Pay:

Regular Pay - 36 hours x 200
7,200
Withholding Tax:
(7,200 – 4,808) (.2)
478.4
Regular Pay – 40 hours x 200
8,000
Withholding Tax:
[(8,000 – 7,692) x .25] + 576.92
653.92

Rica Princess
Gross Pay 8,400 Gross Pay 7,770
Withholding Tax (753.92) Withholding Tax (596.42)
Net Pay 7,646.08 Net Pay 7,173.58

Gross Pay: Gross Pay:

Regular Pay – 40 x 200 = 8,000
Shift Premium – 40 x 10 = 400
8,400
Withholding Tax:
[(8,400 – 7,692) x .25] + 576.92
753.92
Regular Pay – 37 x 200 = 7,400
Shift Premium – 37 x 10 = 370
7,770
Withholding Tax:
[(7,770 – 7,692) x .25] + 576.92
596.42

Bianca Toni
Gross Pay 9,200 Gross Pay 9,200
Withholding Tax (953.92) Withholding Tax (953.92)
Net Pay 8,246.08 Net Pay 8,246.08

Gross Pay: Gross Pay:

Regular Pay – 40 x 200 = 8,000
Shift Premium – 40 x 10 = 400
Night Premium – 40 x 20 = 800
9,200
Withholding Tax:
[(9,200 – 7,692) x .25] + 576.92
953.92
Regular Pay – 40 x 200 = 8,000
Shift Premium – 40 x 10 = 400
Night Premium – 40 x 20 = 800
9,200
Withholding Tax:
[(9,200 – 7,692) x .25] + 576.92
953.92

Factory Payroll 49,770

Withholding Payable 4,390.5
Cash / Salaries Payable 45,379.5
Cost Accounting and Control 2019 Edition
Problem and Solutions

TEST MATERIAL 1.

At the beginning of the month, Roses Corporation had raw materials inventory of P100,000. It purchased
additional raw materials amounting to P600,000. At the end of the month, it was reported that raw materials
decreased by P80,000. Production reports showed that 100,000 units of Product X were manufactured at labor
costs of P550,000 of which 10% is indirect labor; Work in process beginning is P56,000 and decreased by P16,000
at the end of the month. Factory overhead is applied at 80% of direct labor costs. Of the raw materials issued,
only 80% is charged to the job.

1. Determine the prime costs for the period.

DM 544,000 Raw Materials, beginning 100,000

DL 495,000 Raw Materials purchases 600,000
OH 396,000 Raw Materials, end (20,000)
TMC 1,435,000 Raw Materials, issued 680,000
WIP, beg 56,000 x.80
WIP, end (40,000) Direct Materials 544,000
COGM 1,451,000
Factory Overhead
DM 544,000 375,000 400,000
DL 495,000 117,000 120,000
Prime Costs 1,039,000
492,000 520,000

A rush order was accepted by Sonny Company for 4 home video ordered by SM Corporation. The labor time
records for the week show the following:

Labor time distribution

Employees Hours HV 1 HV 2 HV 3 HV 4
Andrea 42
Mayet 45 10 10 10 15
Mel 48 24 24
Malou 48 4 22 22
Glenn 45 15 15 15
Ryan 42 24 8 10
Boy 40 20 10 10

All workers are paid P100 per hour, except Andrea, the Supervisor, who receives P156 per hour. Overtime premium is
10% of regular rate. The regular work time is 8 hours a day or 40 hours a week.

2. Compute for the gross payroll for the week.

3. Distribute the payroll (Work in process & Factory overhead)
Cost Accounting and Control 2019 Edition
Problem and Solutions

Andrea (Supervisor) Mayet

Regular Pay (42 x 156) 6,552.00 Regular Pay (45 x 100) 4,500
Overtime Premium (2 x 15.6) 31.20 Overtime Premium (5 x 10) 50
6,583.20 4,550

Mel Malou
Regular Pay (48 x 100) 4,800 Regular Pay (48 x 100) 4,800
Overtime Premium (8 x 10) 80 Overtime Premium (8 x 10) 80
4,880 4,880

Glenn Ryan
Regular Pay (45 x 100) 4,500 Regular Pay (42 x 100) 4,200
Overtime Premium (5 x 10) 50 Overtime Premium (2 x 10) 20
4,550 4,220

Boy Note:
Because it is a rush order the regular pay and the overtime
Regular Pay (40 x 100) 4,000 premium is considered as direct labor. However, Andrea’s regular
pay and overtime premium is considered as factory overhead.

Gross Payroll:
Regular pay 33,352
Overtime Premium 311.2
Gross Pay 33,663.2

Factory Payroll 33,663.2

Cash / Salaries Payable 33,663.2

Work in Process 27,080

Factory Overhead 6,583.20
Factory Payroll 33,663.2

Intel Company pay its workers a basic rate of P68 per hour plus 10% premium for ordinary overtime plus 10%
night premium. The regular working days is from Monday to Friday, 8am to 5pm. In the 1 st week of August, Intel
Company required 5 of its workers to work beyond ordinary working time one Friday. The 5 workers worked up to
11pm that Friday.

4. Compute for the total earnings of the 5 workers for the day, Friday, and determine the amount charged to factory
overhead.

Factory Payroll 4,998

Cash / Salaries Payable 4,998

Work in Process 4,760

Factory Overhead 238
Factory Payroll 4,998
Cost Accounting and Control 2019 Edition
Problem and Solutions

HP Company generated the following data for the year just ended:

Total manufacturing costs P10,000,000

Cost of goods manufactured P10,250,000
Overhead applied based on direct labor costs 75%
Overhead applied based on total manufacturing costs 27%

5. Determine the amount of labor charged to work in process account.

DM 3,700,000 OH = 10,000,000 x .27 = 2,700,000

DL 3,600,000 DL = 2,700,000 / .75 = 3,600,000
OH 2,700,000
TMC 10,000,000

Betty La Fea Company reported the following for the yar just ended:

Beginning inventories:
Raw Materials P 450,000
Work in Process 560,000
Finished Goods 900000

Ending Inventories:
Raw Materials P 600,000
Work in Process 760,000
Finished Goods 1,040,000

Goods Manufactured P6,800,000

Raw material purchases 2,650,000
Overhead applied 50% of DLC

6. Compute for the prime costs for the year just ended.

DM 2,500,000
DL 3,000,000 Raw Materials, beginning 450,000
OH 1,500,000 Raw Materials purchases 2,650,000
TMC 7,000,000 Raw Materials, end (600,000)
WIP, beg 560,000 Raw Materials used 2,500,000
WIP, end (760,000)
COGM 6,800,000
FG, beg 900,000 CC = DL + OH
FG, end (1,040,000) 4,500,000 = x + .50x
COGS 6,660,000 4,500,000 = 1.50x
4,500,000 / 1.50 = 1.50x / 1.50
DM 2,500,000 DL = 3,000,000
DL 3,000,000 OH = 3,000,000 x .50 = 1,500,000
Prime costs 5,500,000
Cost Accounting and Control 2019 Edition
Problem and Solutions

Sharp Enterprises operates its factory on a two-shift basis and pays a late shift differential of 15 percent above
the regular wage rate of P65 per hour. The company also pays a premium of 10 percent for overtime work. During
the year, work occurred in the following categories:

Number of hours worked during the regular shift 10,000

Number of overtime hours for regular shift workers 300
Number of hours worked during the late shift 6,000

7. Determine the amount of total payroll and distribute the total payroll to Work in Process and Factory overhead.

Regular Pay (16,300 x 65) 1,059,500

Overtime Premium (300 x 6.5) 1,950
Night Premium (6,000 x 9.75) 58,500
1,119,950

Factory Payroll 1,119,950

Cash / Salaries Payable 1,119,950

Work in Process 1,059,500

Factory Overhead 60,450
Factory Payroll 1,119,950

A factory employee is paid P45 per hour for a regular workweek of 40 hours. During the week ended June 21, the
employee worked 50 hours and earned time and a half for overtime hours.

8. Compute for the amount debited to work in process.

Regular Pay (50 x 45) 2,250

Overtime Premium (10 x 22.5) 225
2,475

Factory Payroll 2,475

Cash / Salaries Payable 2,475

Work in Process 2,250

Factory Overhead 225
Factory Payroll 2,475
Cost Accounting and Control 2019 Edition
Problem and Solutions

Sunshine Manufacturing Company just started its operation this year. After its first three months of operations,
Sunshine Manufacturing Company had the following data on its operation:

 Cost of goods sold amounted to P540,000

 Manufacturing costs were distributed as follows: 40% direct materials used; 30% direct labor; 30% factory
overhead
 Work in process, March 31 was 10% of the total manufacturing costs
 Finished goods remaining in stock were 20% of the total cost of goods manufactured

9. Compute for the amount of direct labor costs incurred for the period.

DM 300,000 COGM = 540,000 / .80 = 675,000

DL 225,000 TMC = 675,000 x .90 = 750,000
OH 225,000
TMC 750,000
WIP, beg 0
WIP, end (75,000)
COGM 675,000
FG, beg 0
FG, end (135,000)
COGS 540,000

The cost of goods manufactured for the period is P450,000; Factory overhead is P150,000; Decrease in work in
process inventory, P30,000.

10. Determine the amount of prime costs for the period.

Prime Costs 270,000 TMC 420,000

OH 150,000 ΔWIP 30,000
TMC 420,000 COGM 450,000
Cost Accounting and Control 2019 Edition
Problem and Solutions

TEST MATERIAL 2. (UNCHECKED)

Below are balances and information taken from the records of Bulls Company for the last quarter of the current
year:

Inventories: October 1
Raw Materials P134,000
Work in process 354,000
Finished goods 594,600
Cost of goods sold 10,800,000
Manufacturing overhead 4,200,000 debit
4,600,000 credit
Supplementary data:

1) During the period, purchases of raw materials totaled P1,093,400 while physical count of raw materials revealed
that P250,000 were unused.
2) 39,800 direct labor hours were utilized distributed as follows:
a. 25,000 hours worked on regular time at P42.50 per hr.
b. 14,000 hours worked at P42.50 plus 10% special night premium
c. 800 hours worked on overtime at regular rate plus 30% OT premium
3) Overhead is charged to production at 80% of direct labor costs.
4) Actual overhead incurred were P1,420,000. Overhead variance is closed to all accounts with overhead elements
only at the end of the year
5) At the end of the year, records show that work in process increased by P80,000 while Finished Goods decreased
by P150,000.

1. The total factory costs for the quarter amounted to:

a. P4,147,560 c. P4,376,100
b. P4,022,100 d. P3,880,900

2. The costs of goods manufactured for the quarter amounted to:

a. P3,942,100 c. P4,067,560
b. P4,692,100 d. P3,880,900

3. The balances of the following accounts after closing the overhead variance are:
Work in process Finished Goods Cost of Sales
a. P434,000 P444,600 P4,092,100
b. P404,908 P414,797 P3,817,795
c. P463,092 P474,403 P4,366,405
d. P424,831 P435,207 P14,577,643

DM:
DM P 977,400 RM, beg P134,000
DL 1,761,200 RM purchase 1,0931,400
OH 1,408,960 RM, end (250,000)
TMC 4,147,560 RM used P977,400
WIP, beg 594,600
WIP, end (674,600) DL:
COGM 4,067,560 39,800 x 42.50 P1,694,500
FG, beg 594,600 14,000 x 4.25 59,500
COGSAS (444,600) 800 x 12.75 10,200
FG, end (444,600) P1,761,000
COGS P 4,217560 OH:
1,761,200 x .80 P1,408,960

Factory Overhead
4,200,000 4,600,000
1,420,000 1,408,960
Cost Accounting and Control 2019 Edition
Problem and Solutions

5,620,000 6,008,960
388,960
overapplied

Victory Manufacturing Company produces a variety of products. The firm operates 24 hours per day with three
daily work shifts. The first shift workers receive regular pay. The 2 nd shift receive 10% pay premium, and the 3 rd
shifts receive 20% pay premium. In addition, the firm pays overtime premium of 50% based on the pay rate for the
1st shifts. All labor premiums are included in overhead.

The actual payroll for the month is as follows:

Total wages for 16,000 hours ?
Wage rate for the 1st shift P35 per hour
Total regular hours worked 15,000

4. The total amount of total payroll for the period is:

a. P560,000 c. P630,000
b. P525,000 d. P606,600

1st shift 5,000 x 35 P175,000

2nd shift 5,000 x (35 + 3.5) 192,500
3rd shift 5,000 x (35 + 7) 210,000
OT Premium 1,000 x (35 + 17.5) 52,500

Total Payroll P630,000

One Friday morning, a customer brings a rush order of 2,500 units of Product X at a unit sales price of P20. Glory
Company agrees to produce these units for the customer over the weekend for shipment on Monday. Fifty of the
direct labor employees who earn P30 an hour work eight hours each day on Saturday and Sunday to complete
the order. Glory Company regular working day is Monday to Friday. The company’s policy on overtime during
weekend is time and a half Materials costing P3 per unit was used on the order. The factory overhead application
rate is P18 per direct labor hour.

5. The amount of direct labor charged to the job is

a. P36,000 c. P12,000
b. P18,000 d. P24,000

Basic Pay 800 x 30 P94,000

Add: OT Premium 800 x 15 12,000

Total Direct Labor P36,000

X Company pays time and a half for hours in excess of 40 hours per week.

6. If an individual is paid P48 per hour and works 44 hours a week, the weekly earnings will amount to:
a. P1,920 c. P2,064
b. P2,208 d. P2,112

Regular Pay 44 hours x P48 P94,000

Add: OT Premium 4 hours x P24 12,000

Total Weekly Earnings P36,000

UCC Company has three producing departments A, B and C with 50, 30 and 20 employees, respectively in each
department. Factory payroll costs other than direct labor are accumulated in a Payroll Department account and
Cost Accounting and Control 2019 Edition
Problem and Solutions

are assigned to producing departments on the basis of number of employees. The total payroll in each
department was: Dept A, P300,000; Dept B, P275,000; Dept C, P325,000; and Payroll, P50,000, Other costs
accumulated in the Payroll Department amounted to P200,000.

7. The amount of Payroll Department Costs chargeable to Department C is:

a. P125,000 c. P100,000
b. P40,000 d. P50,000
250,000 x .20 = 50,000

8. Which of the following is classified as a period costs?

a. The wages of workers on the shipping docks who load completed products into outgoing trucks
b. The wages of workers paid for the idle time resulting from a machine breakdown in the molding department
c. The payments for employee benefits paid to workers in the manufacturing plant
d. The wages of workers for reworking defective products that failed the quality inspection upon completion

9. The entry when direct factory labor is assigned to jobs is a debit to:
a. Work in process and a credit to factory labor
b. Manufacturing overhead and a credit to factory labor
c. Factory labor and a credit to manufacturing overhead
d. Factory labor and a credit wo work in process inventory

10. Which of the following journal entries records the accrual of the cost of indirect labor used in production?
a. Debit Work in Process Inventory, credit Wages payable
b. Debit Work in Process Inventory, credit Manufacturing Overhead
c. Debit Manufacturing Overhead, credit Work in Process Inventory
d. Debit Manufacturing Overhead, credit Wages Payable

Flores Company applies overhead at 120% of direct labor costs. Job 300 is charges with direct materials of
P12,000 and manufacturing overhead of P7,200. Job 400 has direct materials of P2,000 and direct labor of P9,000.

11. The amount of direct labor charged to Job 300 is:

a. P6,000 c. P8,640
b. P7,200 d. P14,400
7,200 / 1.20 = 6,000

Selected cost data concerning the prior year’s operations of Simply Company at presented below:
Inventories
Beginning Ending
Raw Materials Inventory P75,000 P85,000
Work in Process Inventory 80,000 30,000
Finished Goods Inventory 90,000 110,000

Raw materials used, P326,000 Cost of goods available for sale, P826,000
Total factory costs for the year, P686,000 Selling and general expenses, P25,000
Factory overhead is applied at 60% of direct labor costs

12. Direct labor charged to the job during the year amounted to:
a. P216,000 c. P135,000
b. P225,0000 d. P360,000

DM P326,000 Conversion costs = DM + DL

DL 225,000 360,000 = x + .60x
OH 135,000 360,000 = 1.60x
686,000 360,000 / 1.60 = 1.60x / 1.60
x = 225,000

DL = 225,000 OH = 135,000