Cost Accounting and Control 2019 Edition Problem and Solutions_ CHAPTER 4 – Accounting for Factory O

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Cost Accounting and Control 2019 Edition Problem and Solutions CHAPTER 4 – Accounting for Factory Overhead Swan Manufacturing Company currently uses actual costing method in accumulating the cost of production.

However, Swan Manufacturing Company is planning to adopt the normal costing system starting the next calendar period.

For this purpose, the cost accountant submitted the following budget for the net calendar year: Direct labor, 10,000 DLH Factory, 80% of DLH Direct Materials

P625,000 400,000 600,000

The following are actual data for the current year: Labor: Direct labor costs (7,500 hours) Indirect labor Raw Materials: Inventory, Jan. 1 Purchases Issued to production of which P85,000 is indirect Other factory overhead costs: Depreciation Maintenance Utilities Miscellaneous Work in Process: Beginning inventory Ending inventory Finished Goods: Beginning inventory Ending inventory

P435,000 250,000 P80,000 500,000 485,000 P110,000 50,000 120,000 75,000 220,000 180,000 80,000 110,000

Required: Give all the entries required following the flow of cost using Normal costing method. Support your entries with computations if necessary.

DM DL OH TMC WIP, beg WIP, end COGM FG, beg FG, end COGS

400,000 435,000 348,000 1,183,000 220,000 (180,000) 1,223,000 80,000 (110,000) 1,193,000

DM: Raw Materials, beginning Raw Materials purchases Indirect Materials Raw Materials, end Direct Materials used

80,000 500,000 (85,000) (95,000) 400,000

435,000 / 7,500 7,500 x .80

58 / hr 6,000 348,000

OH:

Factory Overhead

WIP FG COGS

41,510.45 25,367.50 275,122.05 FOH

342,000

WIP: (180,000 / 1,483,000) x 342,000 = 41,510.45 FG:(110,000 / 1,483,000) x 342,000 = 25,367.50 COGS: (1,193,000 / 1,483,000) x 342,000 = 275,122.05

85,000 250,000 110,000 50,000 120,000 75,000

348,000

690,000

348,000

(underapplied) 342,000

Cost Accounting and Control 2019 Edition Problem and Solutions Ex 4-2 Normal Costing – Plant wide vs. Departmental Rate Rock manufacturing has three departments: design, machine sewing, and beading. The design department overhead consists of computers and software for computer-assisted design. The sewing department overhead consists of thread, seeing machines, and small tools. The beading department has very little overhead, just thread and some glue and all departments are assigned a share of utilities, rent, and others. Information on estimated overhead and direct labor hours for the year by department are as follows: Estimated Overhead P110,000 84,000 6,000

Design Dept.

Sewing Dept.

Beading Dept.

Estimated DLH 1,000 2,000 1,000

Estimated MH 5,000 20,000 500

Rocky Manufacturing has just accepted a contract for fifty (50) new tutus for the nutcracker ballet. The costs include direct materials, P50,000; direct labor: 50 hrs. at P52 per hour of design works, 800 hours of sewing time @50 per hour and 50 hours of beading at P52 per hr. Rock Tailoring has an option to use plant-wide rate based on machine hours or Departmental Rates based on MH in Design Dept. and Sewing Dept. and DLH in Beading Dept.

Required: Determine the following: 1. Costs of producing a unit assuming Rocky Tailoring uses (a) Plant-wide rate and (b) Departmental Rate 2. Total amount billed to customer under each method assuming the company maintains a gross profit rate of 30% Direct Materials: Direct Labor: Design Sewing Beading

50,000 50 hrs x P52 800 hrs x P50 50 hrs x P52

2,600 40,000 2,600 45,200

Actual MH: Design Sewing Beadin g

5,000 / 1,000 20,000 / 2,000 500 / 1,000

Plant Wide Rate

200,000 =7.84 per MH 25,500 Overhead: Design Sewing Beading

DM DL OH TMC Divided by: Cost per unit

250 8,000 25 8,275 TMC x 7.84 Divided by: Total OH P64,876 Billing price Departmental Rate DM 110,000 Design : =P 22 per MH DL 5,000 MH OH 84,000 TMC Sewing : =P 4.2 per MH 20,000 MH Divided by: Cost per unit 6,000

Beading : Overhead: Design Sewing Beading Total OH

5 x 50 10 x 800 .50 x 50

1,000 DLH

=P 6 per DLH

250 x 22 8,000 x 4.2 50 x 6.

5,500 33,600 300 39,400

TMC Divided by: Billing price

50,000 45,200 64,876 160,076 50 P3,201.52 160,076 .70 P228,680 50,000 45,200 39,400 134,600 50 P2,692 134,600 .70 P192,286

5 10 .50

Cost Accounting and Control 2019 Edition Problem and Solutions

Ex 4-3. Pre-determined OH rate and application of overhead to job Maryose Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total P550,000 for the year, and machine usage is estimated at 250,000 hours. In January, P52,000 of overhead costs are incurred and 240,000 machine hours are worked.

Required: 1. Determine the amount of applied factory overhead for the year 2. Determine the over or under applied overhead at December 31 Factory Overhead

Applied: 550,000 / 250,000 = P2.2 per hr Jan Remainder

10,000 MH x P2.2 240,000 MH x P2.2

22,000 528,000 550,000

600,000

550,000

600,000

550,000

(underapplied) 50,000

Ex 4-4. Computing overhead account balances Below are partial data for overhead costs and activity levels for three different companies.

Items Budgeted manufacturing OH Actual manufacturing OH Applied OH Budgeted level of activity Actual level of activity Under (over) applied OH

AA1 Co. P1,600,000 1,744,000 1,715,200 500,000 DLH ? ?

AA2 Co. P? ?

1,764,000 400,000 DLH 392,000 DLH (46,800)

AA3 Co. P1,500,000 1,486,000 ? ?

620,000 DLH (64,000)

Required: Find the missing values for each of the companies.

AA1 Co. Actual level of activity: 1,600,000 / 500,000 = 3.2 1,715,200 / 3.2 = 536,000

AA2 Co. Budgeted manufacturing OH: 1,764,000 / 392,000 = 4.5 400,000 x 4.5 = 1,800,000

AA3 Co. Applied OH: 1,486,000 + 64,000 = 1,550,000

Under (over) applied OH: 1,744,000 – 1,715,200 = 28,800 underapplied

Actual manufacturing OH: 1,764,000 – 46,800 = 1,717,200

Budgeted level of activity: 1,550,000 / 620,000 = 2.5 1,500,000 / 2.5 = 600,000

Cost Accounting and Control 2019 Edition Problem and Solutions Ex 4-5. Departmental rate and plant wide rate The following budgeted overhead data is available for Mangroove Manufacturing Company.

Items Supplies Supervisor’s salary Other indirect labor Depreciation Repairs Utilities Insurance Total budgeted overhead Estimated total machine hours Total direct labor hours Machine hours on Job No. 4 Direct labor hours on Job No. 4

Sewing Dept P6,000 10,000 15,000 8,000 5,000 25,000 7,000 76,000 1,250 4,000 80 10

Treating Dept P4,000 15,000 49,000 50,000 6,000 50,000 8,000 182,000 2,500 5,200 250 380

The Company is considering the use of departmental rate (Sewing Dept. based on machine hours & Treating Dept. based on direct labor hours) or plant wide rate (based on direct labor hours) in applying overhead.

Required: 1. Compute for the overhead cost applied to Job No. 4 using plant-wide rate based on direct labor hours.

2. Compute for the overhead cost applied to Job No. 4 using Departmental rates Plant Wide Rate – Job No. 4

Departmental Rate – Job No. 4

76,000 =P 60.8 per MH 1,250 182,000 Treating: =P 35 per MH 5,200 Sewing :

258,000 =28.04 per DLH 9,200 Overhead: Sewing Treating Total OH

100 hrs x 28.04 380 hrs x 28.04

2,804 10,655.2 13,459.20

Overhead: Sewing Treating Total OH

80 hrs x 60.8 380 hrs. x 35

4,864,00 13,300 18,164

Cost Accounting and Control 2019 Edition Problem and Solutions Ex 4-6. Overhead application Budgeted Data Production 60,000 units Direct labor hours Direct labor cost Direct materials Machine hours Overhead cost Actual Data: Production, 58,000 units Direct labor hours Direct labor cost Direct materials Machine hours Overhead costs

Department 1

Department 2

80,000 P2,160,000 P1,350,000 60,000 P2,700,000

120,000 P2,700,000 P1,950,000 40,000 P2,040,000

79,000 P2,145,000 P1,296,000 57,000 P2,793,000

122,000 P2,820,000 P1,962,000 43,000 P2,061,000

Required: 1. Determine the overhead applied to the job by department assuming Department 1 applies overhead based on direct labor hours and Department 2 uses machine hours.

2. Compute for the overhead applied to the job if plant-wide rate based on direct labor hours is used.

Department 1

2,700,000 =33.75 per DLH 80,000

Department 2

2,040,000 =51 per DLH 40,000

79,000 x 33.75 = 2,665,250

43,000 x 51 = 2,193,000

TOTAL OH: 2,665,250 + 2,193,000 = 4,859,250 Plant Wide Rate

4,740,000 =23.7 per DLH 200,000

Dept. 1 Dept. 2 Overhead

79,000 x 23.7 122,000 x 23.7

1,872,300 2,891,400 4,763,700

Cost Accounting and Control 2019 Edition Problem and Solutions Ex. 4-7. Normal Costing Star Manufacturing Company produces objects d’art. Account balances for the company at the beginning and end of July of the current year are shown below: Accounts Raw materials inventory Work in process inventory Finished goods

July 1 P85,000 98,000 50,000

July 31 P105,000 80,000 75,000

During the month, Star’s Manufacturing Company purchased P150,000 of raw materials; Factory payroll was P120,000 of which 25% is for indirect laborers. Other factory overhead amounted to P45,000. Overhead was applied at 80% of direct labor cost. All sales are marked at 40% above cost.

Required: Compute for the cost of goods sold after closing the variance (assuming the overhead variance is insignificant) DM DL OH TMC WIP, beg WIP, end COGM FG, beg FG, end COGS FOH Overapplied

130,000 90,000 72,000 292,000 98,000 (80,000) 310,000 50,000 (75,000) 285,000 3,000 288,000

DM: Raw Materials, beginning Purchases Raw Materials, end Direct Materials used

85,000 150,000 (105,000) 130,000

DL: 120,000 x .75

90,000

90,000 x .80

72,000

OH:

Factory Overhead

30,000 45,000 75,000

72,000

72,000 (overapplied) 3,000

Ex 4-8. Normal costing method G Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to be P2,750,000 for the year, and machine usage is estimated at 125,000 hours. In the month of January, P260,000 of overhead costs are incurred and 10,000 machine hours are used. For the remainder of the year, P2,740,000 of overhead costs are incurred and 120,000 machine hours are worked.

Determine the following: 1. The amount of overhead applied to production.

2. The over or under applied overhead at December 31.

Applied: 2,750,000 / 125,000 = P22 per MH Jan Remainder

10,000 MH x P22 120,000 MH x P22

Factory Overhead

220,000 2,640,000 2,860,000

260,000 2,740,000

2,860,000

3,000,000

2,860,000

(underapplied) 140,000

Cost Accounting and Control 2019 Edition Problem and Solutions Ex 4-9. Step, Direct and Reciprocal Method GAR Company has two producing departments and two service departments. The producing departments, Assembly & Finishing receive services from Personnel and Administration. Personnel keep all employee records and handles payroll; Administration handles all other administrative tasks. Each service department provides services to the other service department as well as to the two operating departments. Data for the most recent month follow: Department Personnel Administration Assembly Finishing Total

Direct Costs P 200,000 500,000 1,800,000 3,000,000 P5,500,000

# of employees 10 30 100 300 440

GAR Company allocates Administration costs based on direct costs of the departments and Personnel costs based on the number of employees. Start with the department that serves the most other service departments.

Required: Allocate the service costs using a. Direct method b. Step method c. Algebraic method DIRECT METHOD Service

Production

Personnel Administration 200,000 500,000 (200,000) 500,000 Personnel Allocation: Personnel to Assembly – (100/400) x 200,000 = 50,000 Personnel to Finishing – (300/400) x 200,000 = 150,000

Assembly 1,800,000 50,000 187,500 2,037,500

Finishing 3,000,000 150,000 312,500 3,462,500

Administration Allocation: Administration to Assembly – (1,800,000 / 4,800,000) x 500,000 = 187,500 Administration to Finishing – (3,000,000 / 4,800,000) x 500,000 = 312,500 STEP METHOD Service Personnel Administration Assembly 200,000 500,000 1,800,000 20,000 (500,000) 180,000 220,000 (220,000) 55,000 2,035,000 Administration Allocation: Administration to Assembly – (1,800,000 / 5,000,000) x 500,000 = 180,000 Administration to Finishing – (3,000,000 / 5,000,000) x 500,000 = 300,000 Administration to Personnel – (200,000 / 5,000,000 x 500,000 = 20,000 Personnel Allocation: Personnel to Assembly – (100/400) x 220,000 = 55,000 Personnel to Finishing – (300/400) x 220,000 = 165,000

Production Finishing 3,000,000 300,000 165,000 3,465,000

Cost Accounting and Control 2019 Edition Problem and Solutions

ALGEBRAIC METHOD Personnel Personnel Administration Assembly Finishing

# of employees

%

30 100 300 430

7% 23% 70% 100%

30/430 100/430 300/430

Administration Direct costs

%

200,000 1,800,000 3,000,000 5,000,000

4% 36% 60% 100%

Personnel Costs = 200,000 + 4%A Administration Costs = 500,000 + 7%P

Personnel Costs = 200,000 + 4%A Administration Costs = 500,000 + 7%P

Personnel Costs: 200,000 + 4% (500,000 + 7%) 200,000 + 20,000 + 0.0028 220,000 / .9972 220,618

Administration Costs 500,000 + 7% (200,000 + 4%) 500,000 + 14,000 + 0.0028 514,000 / 0.9972 515,443

Administration Costs 500,000 + 7% (220,618) 500,000 + 15,443 515,443

Personnel Costs: 200,000 + 4% (515,443) 200,000 + 20,618 220,618

Allocation Personnel costs Assembly: 23% x 220,618 Finishing: 70% x 220,618 Administrations costs: Assembly: 36% x 515,443 Finishing: 60% x 515,443 Total allocated service costs

Assembly

200K/5M 1.8M/5M 3M/5M

Finishing

50,742 154,433 309,266 360,008

309,266 463,699

Cost Accounting and Control 2019 Edition Problem and Solutions PROBLEMS PROBLEM 4-1. Reciprocal or Algebraic method The following overhead budget for the production and service departments of Car Philippines are as follows: Repairs and Maintenance Human Resource Producing Dept. 1 Producing Dept. 2

P870,000 990,000 3,330,000 3,920,000

The following factory statistics are necessary to determine the percentage of service from each department. Number of repair hours is used to allocate the Repairs and Maintenance costs while the number of employees is used for allocating Human Resource costs.

Department

Repair Hours 120 960 2,640 2,400

Repairs and Maintenance Human Resource Department 1 Department 2

Number of employees 6,640 1,115 10,624 15,936

Machine Hours 27,995 19,685

Required: Allocate the Service costs to Departments 1 and 2, using reciprocal or algebraic method.

ALGEBRAIC METHOD Repairs and Maintenance Repairs and Maint.

Human Resource Department 1 Department 2

Repair Hours 960 2,640 2,400 6,000

% 16% 44% 40%

960/6,000 2,640/6,000 2,400/6,000

Human Resource # of employees 6,640 10,624 15,936 33,200

% 20% 32% 48%

6,640/33,200 10,624/33,200 15,936/33,200

Repairs and Maintenance Costs = 870,000 + 20%HR Human Resource Costs = 990,000 + 16%RM Repairs and Maintenance Costs: 870,000 + 20%HR (990,000 + 16%RM) 870,000 + 198,000 + 0.032 1,068,000 / 0.968 1,103,306 Human Resource Costs 990,000 + 16% (1,103,306) 990,000 + 176,529 1,166,529

Allocation Repairs and Maintenance Costs: Dept. 1: 44% x 1,103,306 Dept. 2: 40% x 1,103,306 Human Resource Costs Dept. 1: 32% x 1,166,529 Dept. 2: 48% x 1,166,529 Total allocated service costs

Department 1

Department 2

485,455 441,322 373,289 858,744

559,934 1,001,256

Cost Accounting and Control 2019 Edition Problem and Solutions PROBLEM 4-2. Service Cost Allocation using three methods Baywalk Company has departmentalized its operations into two service departments, General Factory Office and Employee Relations, and three producing departments, Mixing, Fabricating and Finishing. General Factory office is allocated first on the basis of labor hours, and Employees Relations is allocated second on the basis of number of employees. The company provides the following estimated data:

OH costs DLH No. of employees MH

General Factory Office P43,000 10,000 60

Employee Relations P79,000 12,000 30

Mixing

Fabricating

Finishing

P233,000 23,200 144 63,540

P266,000 25,600 228 105,800

P320,000 19,200 168 85,725

The company estimates that indirect costs will be insurance expense, P32,200; and heating and lighting expense, P48,600. It will use the following bases to allocate indirect expenses.

Insurance expenses: On the bases of equipment book values Heating and Lighting expense: On the basis of space occupied Departments General factory office Employee Relations Mixing Fabricating Finishing

Equipment Book Values P20,000 25,000 130,000 175,000 110,000

Space Occupied 1,000 sq ft 800 sq ft 4,000 sq ft 2,000 sq ft 3,000 sq ft

Required: Prepare a schedule showing how the service department costs are allocated to the different departments using: 1. Direct method 2. Step method 3. Algebraic method Service General Factory Employee Relations Office 43,000 79,000 (43,000) (79,000)

DIRECT METHOD Production Mixing Fabricating 233,000 14,671 21,067 268,738

General Factory Office Allocation: GFO to Mixing: (23,200 / 68,000) x 43,000 = 14,671 GFO to Fabricating: (25,600 / 68,000) x 43,000 = 16,188 GFO to Finishing: (19,200 / 68,000) x 43,000 = 12,141 Employee Relations Allocation: ER to Mixing: (144 / 540) x 79,000 = 21,067 ER to Fabricating: (228 / 540) x 79,000 = 33,356 ER to Finishing: (168 / 540) x 79,000 = 24,577

266,000 16,188 33,356 315,544

Finishing 320,000 12,141 24,577 356,718

Cost Accounting and Control 2019 Edition Problem and Solutions DIRECT METHOD Service General Factory Employee Relations Office 43,000 79,000 (43,000) 6,450 85,450 (85,450)

Mixing

Production Fabricating

Finishing

233,000 12,470

266,000 13,760

320,000 10,320

22,787 268,257

36,079 315,839

26,584 356,904

General Factory Office Allocation: GFO to Mixing: (23,200 / 80,000) x 43,000 = 12,470 GFO to Fabricating: (25,600 / 80,000) x 43,000 = 13,760 GFO to Finishing: (19,200 / 80,000) x 43,000 = 10,320 GFO to ER: (12,000 / 80,000) x 43,000 = 6,450 Employee Relations Allocation: ER to Mixing: (144 / 540) x 85,450 = 22,787 ER to Fabricating: (228 / 540) x 85,450 = 36,079 ER to Finishing: (168 / 540) x 85,450 = 26,584

ALGEBRAIC METHOD General Factory Office General factory office Employee Relations Mixing Fabricating Finishing

DLH 12,000 23,200 25,600 19,200 80,000

% 15% 29% 32% 24%

12,000 / 80,000

23,200 / 80,000 25,600 / 80,000 19,200 / 80,000

Employee Relations # of employees 60 144 228 168 600

% 10% 24% 38% 28%

60 / 600 144 / 600 228 / 600 168 / 600

General Factory Office Costs = 43,000 + 10%ER Employee Relations Costs = 79,000 + 15%GFO General Factory Office Costs: 43,000 + 10% (79,000 + 15%) 43,000 + 7,900 + 0.015 50,900 / 0.985 51,675 Employee Relations Costs: 79,000 + 15% (51,675) 79,000 + 7,751 86,751 Allocation General Factory Office Costs: Mixing: 29% x 51,675 Fabricating: 32% x 51,675 Finishing: 24% x 51,675 Employee Relations Costs: Mixing: 24% x 86,751 Fabricating: 38% x 86,751 Finishing: 28% x 86,751 Total allocated service costs

Mixing

Fabricating

Finishing

14,986 16,536 12,402 20,820 32,965 24,290 35,806

49,501

36,692

Cost Accounting and Control 2019 Edition Problem and Solutions Problem 4-3. Plant wide rate versus departmental rate Universal Manufacturing Company produced variety of products all of which is processed in two departments. The company presented to you the following budgeted information for the current year to help the production manager in determining the cost of its prime products.

Department 1 P486,000 27,000 4,200

Budgeted overhead Budgeted labor hours Budgeted machine hours

Department 2 P564,000 3,000 65,800

Actual cost information for each unit of product is presented below: Department 1 P35.00 1.5 hours P40 per hour 0.2MH P148,000

Direct materials Direct labor hours Direct labor rate Machine hours Overhead incurred

Department 2 P10.00 30 min P50 per hour 1.5MH P210,000

Required: Determine the following A. If Plant wide-rate is used 1) Total overhead applied based on direct labor hours 2) The total costs of producing 5,000 units B. If Departmental rate is used 1) Total overhead applied using the most appropriate basis 2) Total costs of producing 5,000 units Plant Wide Rate

1,050,000 =35 per DLH 30,000 Overhead: Dept. 1 Dept. 2 Total OH

5,000 x 1.5 x 35 5,000 x .5 x 35

DM DL OH TMC

225,000 425,000 350,000 P1,000,000

Departmental Rate DM DL OH TMC

225,000 425,000 199,275 P849,275

262,500 87,500 P350,000

486,000 Dept .1 : =P 18 per DLH 27,000 DLH 564,000 Dept .2 : =P 8.57 per MH 65,800 MH Overhead: Dept. 1 Dept. 2 Total OH

5,000 x 1.5 x 18 5,000 x 1.5 x 8.57

135,000 64,275 P199,275

Cost Accounting and Control 2019 Edition Problem and Solutions Problem 4-4. Departmental OH rate after allocation of service cost. (NOT CHECKED) Nissan Manila is developing departmental overhead rates based on direct labor hours for its two production departments, Assembly and Finishing after service costs are distributed. The Assembly Department employs 20 people and 80 people for Finishing Department. Each person in these two departments work 2,000 hours per year. The direct overhead rate costs for the Assembly Department are budgeted at P2,040,000 while the Finishing Department costs are budgeted at P3,200,000. Two service departments, Repair and Power, support the two production departments and have budgeted costs of P480,000 and P1,250,000, respectively. The following data shown below reflect the usage of Repair and Power Department: Departments Assembly Department Finishing Department Repair Department Power Department

Services provided by Repair Department Power Department 1,000 hours 840,000 KWH 8,000 hours 120,000 KWH 240,000 KWH 1,000 hours -

Required: Determine the Departmental Overhead rate assuming the service department costs is allocated using 1. Direct method 2. Step method 3. Algebraic method DIRECT METHOD Service

Production Assembly Department Finishing Department

Repair Department: 480,000 To Assembly: (1,000/9,000) x 480,000 To Finishing: (8,000/9,000) x 480,000 Power Department: 1.250.000 To Assembly: (840K/960K) x 1,250,000 To Finishing: (120K/960K) x 1,250,000 Divided by: DLH Assembly: Finishing: Department OH rate:

53,333.33 426,666.67

20 emp. x 2,000 hours 80 emp. X 2,000 hours

1,093,750

156,250

1,147,083.33 40,000

582,916.67

28.68

160,000 3.64

STEP METHOD Service Power Department: 1,250,000 To Assembly: (840K/1.2M/) x 1,250,000 To Finishing: (120K/1.2M) x 1,250,000 To Repair: (240K/1.2M) 1,250,000 = 250,000 Repair Department: 480,000 + 250,000 = 730,000 To Assembly: (1,000/9,000) x 730,000 To Finishing: (8,000/9,000) x 730,000 Divided by: DLH Assembly: Finishing: Department OH rate:

20 emp. x 2,000 hours 80 emp. X 2,000 hours

Production Assembly Department Finishing Department 875,000 125,000 81,111.11 648,888.89 956,111.11 40,000 23.90

773,888.89 160,000 4.84

Cost Accounting and Control 2019 Edition Problem and Solutions

ALGEBRAIC METHOD Repair Repair Power Assembly Finishing

HOURS

%

1,000 1,000 8,000 10,000

10% 10% 80% 100%

1/10 1/10 8/10

Power KWH

%

240,000 840,000 120,000 1,200,000

20% 70% 10% 100%

Repair Costs = 480,000 + 20%P Power Costs = 1,250,000 + 10%R Repair Costs: 480,000 + 20% (1,250,000 + 10%) 480,000 + 250,000 + 0.02 730,000 / 0.98 744,898 Power Costs 1,250,000 + 10% (744,898) 1,250,000 + 74,490 1,324,490 Allocation Repair Costs: Assembly: 10% x 744,898 Finishing: 80% x 744,898 Power Costs: Assembly: 70% x 1,250,000 Finishing: 10% x 1,250,000

Assembly

Total allocated service costs Divided by: 20 emp. x 2,000 hours 80 emp. X 2,000 hours Department OH rate:

949,490

Finishing

74,490 595,918 875,000 125,000 720,918

40,000 23.74

160,000 4.51

1/5 7/10 1/10

Cost Accounting and Control 2019 Edition Problem and Solutions TEST MATERIAL 1. THEORY (NOT CHECKED) 1. In a job order costing system, the use of indirect materials would usually be reflected in the general ledger as an increase in a. Materials control c. Manufacturing overhead control b. Working in process control d. Manufacturing overhead applied 2. At the end of a period, after overhead has been applied to all jobs, Manufacturing overhead as a credit balance of P1,900. We say that overhead is a. Misstated c. Over applied b. Incorrectly applied d. Under applied 3. The journal entry to record the incurrence and payment of overhead costs for factory insurance requires a debit to a. Cash and a credit to manufacturing overhead b. Manufacturing overhead and a credit to accounts payable c. Manufacturing overhead and a credit to cash d. Work in process inventory and a credit to cash 4. Overtime wages, exclusive of overtime premium paid to direct laborers should be: a. Considered part of manufacturing support costs b. Included as part of direct labor costs c. Treated as a general and administrative costs d. Treated as a selling costs 5. Why Is direct labor often used as basis for applying overhead costs to jobs? a. Overhead is very similar to direct labor b. Overhead includes direct labor c. Overhead occurs before direct labor is charged to job d. Overhead occurs in relation to the direct labor cost 6. Since overhead costs are indirect cost a. They require some process of allocation b. They can be easily traced to production c. A predetermined overhead rate is not advantageous d. They cannot be allocated 7. Applied overhead consists for which of the following? a. Actual activity times predetermined overhead rate b. Estimated capacity times predetermined overhead rate c. Actual activity times actual overhead rate d. Estimated activity times actual overhead rate 8. If under applied overhead is considered to be immaterial, it is closed wo which of the following accounts?

Work in Process Finished Goods Cost of Sales a.

Yes Yes Yes b.

No Yes Yes c.

Yes No No d.

No No Yes 9. Actual overhead exceeds applied overhead and the amount is immaterial. Which of the following will be true? Upon closing, Overhead Cost of Sales will a.

Underapplied Increase b.

Overapplied Decrease c.

Overapplied Increase d.

Underapplied Decrease 10. The predetermined overhead rate is usually calculated a. At the end of each month c. At the beginning of the year b. At the beginning of each month d. At the end of the year

Cost Accounting and Control 2019 Edition Problem and Solutions 11. Materials amounts of under-applied or over-applied overhead should be a. treated as an adjustment to cost of goods sold b. treated as an adjustment to work in process inventory c. allocated to direct materials inventory, work in process inventory, and finished goods inventory d. allocated to work in process, finished goods inventory and cost of goods sold Assume the following. Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate.

12. If overhead is applied using the predetermined overhead rate, then overhead is a. Overapplied c. P0 variance b. Underapplied d. Indeterminable from the information given 13. If actual is less than applied overhead, which of the following will be true, upon closing?

Overhead Cost of Sales will a. Underapplied Credited b. Underapplied Debited c. Overapplied Debited d. Overapplied Credited 14. Which of the following is not a reason to use predetermined overhead rates? a. To overcome the problems of assigning overhead to diverse types of products b. To compensate for fluctuations in monthly overhead costs c. To provide a means for assigning overhead during the period rather than at the end of the period d. To smooth out the amount of overhead cost assigned to products when monthly production activity differs 15. One reason annual overhead application rates are used is a. Because of seasonal variability of overhead costs b. To help budget overhead costs c. To minimize the overhead costs assigned to products d. To maximize the overhead costs assigned to products 16. Which of the following is correct about overhead variance? a. The controllable variance generally pertains to fixed overhead costs b. The volume variance pertains solely to variable overhead costs c. Standard hours actually worked are used in each variance d. Budgeted overhead costs are based on the flexible budget 17. The formula for computing the total overhead variance is: a. Actual overhead less applied overhead c. Actual overhead less budgeted overhead b. Budgeted overhead less applied overhead d. No answers given 18. Manufacturing overhead is underapplied if: a. Actual rate is equal to predetermined rate b. Actual overhead is less than applied

c. Actual rate is not equal to predetermined rate d. Actual overhead is greater than applied

19. Manufacturing overhead a. Consists of all manufacturing costs other than direct labor b. Consists of all manufacturing costs other than indirect costs c. Consists of all manufacturing costs other than direct materials d. Consists of all manufacturing costs other than direct costs 20. Which of the following can be used in calculating predetermined overhead rate? a. Estimated factory overhead divided by actual machine hours b. Estimated factory overhead divided by estimated machine hours c. Estimated direct labor costs divided by estimated machine hours d. Estimated direct labor costs divided by actual machine hours

Cost Accounting and Control 2019 Edition Problem and Solutions TEST MATERIAL 2.

Valley Corporation uses a normal cost system of accumulating product cost and has two production departments A and B. Budgeted manufacturing costs for the year are: Department A P700,000 200,000 600,000

Direct Materials Direct Labor Manufacturing Overhead

Department B P100,000 800,000 400,000

Valley Corporation applies overhead to jobs using departmental rates on the basis of direct labor cost. Actual material and labor costs charged to Job 100 are as follows: Direct materials Direct labor: Department A Department B

P25,000 8,000 12,000

1. Determine the overhead applied to the job.

Department A

600,000 =P 3 200,000

Department B

400,000 =P 0.5 800,000

8,000 x 3 = 24,000 12,000 x 0.5 = 6,000 Total Applied OH: 24,000 + 6,000 = 30,000

Dragon Company distributes service department overhead costs directly to producing departments without allocation to the other service department. Information for the month of August is as follows:

Overhead costs incurred Service provided to departments: Maintenance Utilities Department 1 Department 2

Service Departments Maintenance Utilities P20,000 P10,000 10% 20% 40% 40%

30% 60%

2. Determine the total service costs allocated to Department 1.

Maintenance costs: 20,000 + 10%U Utilities costs: 10,000 + 20%M Maintenance costs: 20,000 + 10% (10,000 + 20%) 20,000 + 1,000 + 0.02 21,000 / .98 21,429 Utilities costs: 10,000 + 20% (21,429) 10,000 + 4,286 14,286

Department 1 Maint. costs: Dept. 1 Dept. 2 Utilities costs Dept. 1 Dept. 2

40% x 21,429 40% x 21,429

8,572

30% x 14,286 60% x 14,286

4,286

Department 2 8,572 8,571

12,858

17,143

Cost Accounting and Control 2019 Edition Problem and Solutions The following costs data are available for UP Box Inc. for its first month of operation: Direct materials Direct labor at P20 per hour Direct material purchases Direct and indirect labor costs FOH excluding indirect labor and indirect materials Indirect materials

P103,000 46,000 150,000 48,000 32,000 2,000

Overhead is applied at the rate of P16 per DLH. 1. Compute for the balance of work in process assuming 950 hours were used in this job and material cost of P28,000 were incurred.

DM DL (950 x 20) OH (950 x 16) Bal. of Work in Process

28,000 19,000 15,200 62,200

Jake’s Battery Company has two service departments – Personnel and Maintenance. The Maintenance Department’s costs of P160,000 are allocated on the basis of standard hours used. The Personnel Department’s costs of P40,000 are allocated based on the number of employees. The costs of operating Departments A and B are P80,000 and P120,000, respectively.

Data on standard service hours and number of employees are as follows:

Hours used # employees

Standard Service Maintenance Personnel 400 400 20 20

Production Departments A B 480 320 80 240

2. Compute for the total service costs allocated to Department A. Maintenance: Personnel:

160,000 x 480 / 800 40,000 x 80/320

= =

96,000 10,000 106,000

Bushel Company runs a highly automated operation that measures its activity by machine hours. Its managers have budgeted 300,000 machine hours for 2019. The company’s budgeted annual manufacturing overhead is equal to P600,000 + (3 x machine hours). The company had no beginning inventories. At the end of the year, the accountant collected the following information.

Total manufacturing overhead incurred Machine hours on jobs sold Machine hours on jobs in ending inventories 3. Determine the overhead component of the costs of goods sold.

600,000 + (3 x 300,000) 600,000 + 900,000 = 1,500,000 1,500,000 / 300,000 = P5 375,000 x P5 = P1,375,000

P1,585,000 275,000 40,000

Cost Accounting and Control 2019 Edition Problem and Solutions Sunshine Company currently uses a plant wide rate based on direct labor hours. The Cost Accounting Department provided you the following budgeted information at the beginning of the current year: Items Direct materials Direct labor hours Machine hours Budgeted OH Labor rate

Department 1 P18 / lb. (1.5lb/unit) 110,000 (2.2h/unit) 2,000 P1,149,500 P45.00/hr

Department 2 P25/lb. (.75lb/unit) 10,000 (.2h/unit) 100,000 P590,500 P50.00/hr.

Actual production data for the 1st quarter of the year is as follows: Items Direct materials Direct labor hours Machine hours Labor rate Variable overhead Fixed overhead Units produced,14,000

Department 1 20,500 @20/lb 28,000 hrs.

600 hours P48/hour P265,000 P140,000

Department 2 11,000lbs @P24/lb 2,800 hrs.

6,800 hours P50/hr P20,600 P20,000

1. Determine the manufacturing cost per unit using (a) actual costing and (b) normal costing.

2. Determine the manufacturing cost per unit, assuming the company decides to adopt departmental rates, Department 1 based on direct labor hours and Department 2 based on machine hours.

Direct Materials Direct Labor Factory Overhead Total Manufacturing Cost Divided by: Cost per unit

Actual Costing Department 1 410,000 1,344,000 405,000

Department 2 264,000 140,000 40,600

Total 674,000 1,484,000 445,600

2,159,000

444,600

2,603,600 14,000 185.97 per unit

Normal Costing 1,740,000 / 120,000 = 14.5 Department 1 (28,000 x 14.5) Department 2 (2,800 x 14.5) Total Overhead

406,000 40,600 446,600

DM DL OH TMC Divided by Cost per unit

674,000 1,484,000 446,600 2,604,600 14,000 186.04 per unit

Departmental Rates Department 1 – 1,149,500 / 110,000 = 10.45 Department 2 – 590,500 / 100,000 = 5.91 Department 1 (28,000 x 10.45) Department 2 (6,800 x 5.91) Total Overhead

292,600 40,188 332,788

DM DL OH TMC Divided by Cost per unit

674,000 1,484,000 332,788 2,490,788 14,000 177.91 per unit

Cost Accounting and Control 2019 Edition Problem and Solutions Intel Company expected to produce 200,000 units of computer for the current year. The predetermined overhead rate is P10.40 per unit. Intel Company’s foxed overhead is budgeted at P900,000.

1. Determine the variable factory overhead rate.

Estimated production units Multiply by predetermined OH rate Total Factory OH Fixed Factory OH Variable Factory OH Divided by estimated production units Variable Factory OH rate

200,000 10.4 2,080,000 (900,000) 1,1800,000 200,000 5.9

Prince Company budgeted annual variable overhead at P1,800,000 for the current period. In addition, they budgeted costs for factory rent at P50,000 a month, depreciation of office equipment at P62,000 a year, depreciation of factory plant and equipment at P380,000 a year. All these costs were based upon estimated machine hours of 80,000. During the year, total debits to factory overhead amounted to P2,600,000. Actual machine hours were 74,000.

2. Determine the over-under applied overhead for the period.

Budgeted Overhead: OH Factory Rent Dep. Factory plant & equip.

2,230,000 / 80,000 = 27.875 1,800,000 50,000 380,000 2,230,000

74,000 x 27.875 = 2,062,750 Actual overhead – Applied overhead 2,600,000 – 2,062,750 = 537,250 (underapplied)

Princess Company allocates service costs using algebraic method. The following budgeted data are available for the coming calendar year:

Departments Dept. 1 Dept. 2 S1 S2

Budgeted OH P940,000 850,000 200,000 176,000

Provider of service S1 S2 40% 50% 50% 30% 20% 10% -

3. Determine the total budgeted factory overhead of Department 1 after allocation of service costs.

S1 costs: 20,000 + 20%S2 S2 costs: 176,000 + 10%S1 S1: 200,000 + 20% (176,000 + 10%) 200,000 + 35,000 +0.02 235,000 / 0.98 240,000 S2: 176,000 + 10% (240,000) 176,000 + 24,000 200,000

Department 1 Budgeted OH Provided service by: S1 40% x 240,000 S2 50% x 200,000 Total Budgeted OH

940,000 96,000 150,000 1,186,000

Cost Accounting and Control 2019 Edition Problem and Solutions Cebu Pacific has two operating departments, Freight and Passenger, and two service centers, Maintenance and administration. The following data are available for the period just ended: Service Departments Maintenance Administration P630,000 P950,000 8,000 9,000 40 50

Direct OH costs DLH # of employees

Producing Departments Freight Passenger P1,800,500 P5,260,470 30,000 51,000 80 200

Administration is allocated first using labor hours as the basis of allocation followed by Maintenance using number of employees as the basis.

1. Determine the total service cost allocated to Freight Department using step method (starting from Passenger Dept.)

2. Determine the Administration costs allocated to Passenger Department assuming algebraic method is used to allocated joint costs.

STEP METHOD Service Production Maintenance Administration Freight Passenger 630,000 950,000 1,800,500 5,260,470 85,393 (950,000) 320,225 544,382 715,393 (715,393) 204,398 510,995 2,325,123 6,315,847 Administration Allocation: Administration to Freight – (30,000 / 89,000) x 950,000 = 320,225 Administration to Passenger – (51,000 / 89,000 x 950,000 = 544,382 Administration to Maintenance – (8,000 / 89,000) x 950,000 = 85,393 Maintenance Allocation: Maintenance to Freight – (80/280) x 715,393 = 204,398 Maintenance to Passenger – (200/280) x 715,393 = 510,995 Total Service cost allocated to Freight Department: 320,225 + 204,398 = 524,623

ALGEBRAIC METHOD Maintenance Maintenance Administration Freight Passenger

# of employees

%

50 80 200 330

15% 24% 61%

50/330 80/330 200/330

Administration Labor Hours

%

8,000 30,000 51,000 89,000

9% 34% 57%

8/89 30/89 51/89

Maintenance Costs = 630,000 + 9%A Administration Costs = 950,000 + 15%M Maintenance Costs: 630,000 + 9% (950,000 + 15%) 630,000 + 85,500 + 0.0135 715,500 / 0.9865 725,291 Administration Costs 950,000 + 15% (725,291) 950,000 + 108,794 1,058,794

Administration costs allocated to Passenger Department: 1,058,794 x 57% = 603,513

Cost Accounting and Control 2019 Edition Problem and Solutions TEST MATERIAL 3.

Below are balances and information taken from the records of Majestic Corporation for the last quarter of the current year: Inventories, Oct 1 Raw materials Work in process Finished goods Manufacturing overhead: Total debits Total credits

P7,560,000 8,280,000

Cost of goods sold

P19,440,000

P241,200 637,200 1,070,000

Supplementary data: a. During the quarter, purchase of raw materials totaled P1,968,120 while physical count of raw materials revealed that P450,000 were unused. b. Direct labor hours work on regular time at regular rate of P76.50 per hour; 14,000 hours worked at regular rate plus 10% special night premium; and 800 hours worked on overtime at regular rate plus 30% overtime premium. c. Overhead is charged to production at 80% of direct labor costs. d. Actual overhead incurred was P2,556,000 including indirect materials of P21,600 but excluding special night and overtime premium. Overhead variance is closed to all accounts with overhead elements only at the end of the year. e. At the end of the year, records show that work in process increased by P144,000 while finished goods decreased

by P270,000.

1. Compute for the total factory costs for the period.

2. Determine the costs of goods manufactured during the period 3. Determine the costs of goods sold after closing the variance, assuming the amount of variance is insignificant.

Materials: RM, beg Purchase Indirect Mat. RM, end RM used

241,200 1,968,120 (21,600) (450,000) 1,737,720

Labor: Direct labor Reg Pay: 14,800 x 76.50 = 1,132,200 Indirect Labor: Night Premium: 14,000 x 7.65 = 107,100 OT Premium: 800 x 22.95 = 18,360

Overhead: Applied: 1,132,200 x .80 = 905,760 Actual: Incurred Night Premium OT Premium

2,556,000 107,100 18,360 2,681,460

Actual OH – Applied OH 2,681,460 – 905,760 = 1,775,700 (underapplied) DM DL OH TMC WIP, beg WIP, end COGM FG, beg FG, end COGS Overhead variance

1,737,720 1,132,200 905,760 3,775,680 637,200 (781,200) 3,681,680 1,070,280 (800,280) 3,901,680 1,775,700 5,667,380

Cost Accounting and Control 2019 Edition Problem and Solutions

The following cost information was taken from the records of Skyline Manufacturing Company: a. b. c. d. e.

Budgeted direct labor costs: 75,000 hours at P52.50 per hour.

Budgeted manufacturing overhead: P2,953,125 Actual direct labor costs: 72,000 hours at P54.00 per hour Actual manufacturing overhead: P2,500,000. Excluding indirect materials and indirect labor of P800,000.

Indirect materials: beginning, P50,000; purchases, P250,000; ending, P65,000.

4. Determine the total amount of overhead applied during the year.

Applied Overhead: 2,953,125 / 75,000 = 39.38 72,000 x 39.38 = 2,835,360 G Company applies overhead to jobs on the basis of machine hours. Overhead costs are expected to be P2,750,000 for the year and machine usage is estimated at 125,000 hours. In the month of July, P260,000 of overhead costs are incurred and 10,000 machine hours are used. For the remainder of the year, P2,740,000 of overhead costs are incurred and 120,000 of machine hours are utilized.

5. Compute for the month of over or under applied overhead at the end of the period.

Applied OH:

Actual OH: Incurred: July Remainder Actual OH

2,750,000 =22/MH 125,000 Machine Hours: July Remainder Total Machine Hours Multiply by Applied Overhead

10,000 120,000 130,000 22 2,860,000

260,000 2,740,000 3,000,000

Actual OH – Applied OH 3,000,000 – 2,860,000 140,000 (underapplied)

Cost Accounting and Control 2019 Edition Problem and Solutions Trending Company has job in process at the start of the month with total costs of P252,000. During the month, factory cost incurred to complete the job follows: Materials P63,000 Direct Labor 105,000 Machine hours used 3,600 hours Additional information: a. The company applied overhead on the basis of machine hours. Budgeted overhead and machine hours at practical capacity were estimated to be P2,568,000 and 48,000 hours, respectively. b. Actual overhead for the period, P202,000. c. The job was delivered to the customer at 40% gross profit rate. d. Any overhead variance is closed to cost of sales.

6. Determine the amount billed to the customer 7. Determine the cost of sales after closing the variance.

DM DL OH TMC WIP, beg COGS Overhead variance Adjusted COGS Multiply by: Billed to customer

63,000 105,000 192,600 360,000 252,000 612,600 9,400 622,000 1.40 870,800

Applied OH: 2,568,000 / 48,000 = 53.5 3,600 x 53.5 = 192,600 Actual OH – Applied OH 202,000 – 192,600 = 9,400 underapplied

Forever 21 Manufacturing Company specializes in designer dresses which it manufactures for elite group. The budgeted data for its main plant for 2019 are as follows:

Overhead costs DL hours Machine hours Space occupied

Support Functions Administration Maintenance P1,800,000 P800,000 20,000 4,500 sqm

7,000 sqm

Producing Departments Cutting Sewing P5,000,000 P6,000,000 80,000 20,000 90,000 150,000 50,000 sqm 25,000 sqm

Administration costs are allocated based on direct labor hours while Maintenance costs are allocated based on space occupied.

The company uses normal costing method and computes department overhead rate based on direct labors hours in Cutting department and machine hours in Sewing department, after allocating support function costs using direct method.

During the year, Trinoma Department Store placed an order of 10,000 dresses. Forever 21 Manufacturing Company bills their clients so much to give them 25% gross profit rate. Data for this job order are as follows: Direct materials Direct labor hours Direct labor costs Machine hours 8. Determine the overhead applied to the job order.

9. Determine the manufacturing cost per unit of dress.

10. Determine the gross profit from this order.

Cutting P950,000 20,000 P560,000 16,000

Sewing P210,000 5,000 P1,200,000 30,000

Cost Accounting and Control 2019 Edition Problem and Solutions 11. DIRECT METHOD Support Functions Producing Departments Administration Maintenance Cutting Sewing 1,800,000 800,000 5,000,000 6,000,000 (1,800,000) 1,440,000 360,000 (800,000) 533,333 266,667 6,973,333 6,626,667 Administration Allocation: Administration to Cutting: (80,000 / 100,000) x 1,800,000 = 1,440,000 Administration to Sewing: (20,000 / 100,000) x 1,800,000 = 360,000 Maintenance Allocation: Maintenance to Cutting: (50,000 / 75,000) x 800,000 = 533,333 Maintenance to Sewing: (25,000 / 75,000 x 800,000 = 266,667

DM DL OH TMC Divided by producing units Man. cost per unit

1,160,000 1,760,000 3,068,800 5,988,800

TMC Multiply by: Sales

5,988,800 1.25 7,486,000 (5,988,800) 1,497,200

Gross Profit

10,000 598.88

Applied OH Cutting:

6,973,333 =87.17/ DLH 80,000 20,000DLH x 87.17 = 1,743,400

Sewing:

6,626,667 =44.18/ MH 150,000 30,000MH x 44.18 = 1,325,400

Total OH: 1,743,400 + 1,325,400 = 3,068,800

Cost Accounting and Control 2019 Edition Problem and Solutions TEST MATERIAL 4. MULTIPLE CHOICE Burn Company uses a predetermined overhead rate to assign overhead to jobs on the basis of machine hours.

The practical level of company’s plant is 50,000 machine hours. During the year, Burn Company used 48,000 machine hours and incurred actual overhead costs of P2M. Burn Company also has the following balances of applied overhead in its accounts: Work in Process Cost of goods sold Finished goods 1. The predetermined overhead rate is a. P48 per MH b. P50 per MH

P 460,000 1,440,000 500,0000 c. P40 per MH d. P41.67 per MH

2,400,000 =P 48/ MH 50,000 Satellite Company applies factory overhead on the basis of a rate per direct labor hour. The company provides you with the following data for the month of August, year 1. Selected inventories have the following balances: Inventories: Work in Process Finished Goods Prime Costs for the month were: Direct materials used Direct labor (45,000 actual labor hours)

August 1

August 31

P78,000 81,000

P85,000 60,000 P48,000 P294,000

Sales have increased 20 percent over last month’s sales of P500,000; as a result, gross margin for August is P190,000.

Actual factory overhead for August is P58,100.

2. The factory overhead application rate is a. 1.2 x DL costs c. P1.291 per DLH b. P1.20 per DLH d. .1976 of DL costs DM DL OH TMC WIP, beg WIP, end COGM FG, beg FG, end COGS

48,000 294,000 54,000 396,000 78,000 (85,000) 389,000 81,000 (60,000) 410,000

Sales COGS Goss Margin

600,000 410,000 190,000

Sales: 500,000 x 1.20 = 600,000 OH application rate: 54,000 / 45,000 = 1.20 per DLH

Cost Accounting and Control 2019 Edition Problem and Solutions The following schedule showing the allocation of service department costs using step method is given below:

Budgeted OH costs by dept.

Allocation: Maintenance Personnel Finance Budgeted OH costs after allocation Budgeted direct LH Space occupied No. of personnel

Producing Producing Finishing P1,000,000 P975,000 150,000 276,029 84,410

90,000 138,014 112,547

P1,510,439 35,000 500 sq 50

P1,315,561 15,000 300 sq 25

Service Departments Maintenance Personnel P300,000 P400,125

Finance P150,875

(300,000)

36,000 (436,125)

24,000 22,082 (196,957)

100 sq 6

120 sq 20

80 sq 4

Bases of allocation: Maintenance cost is allocated first using space occupied Personnel cost is allocated second using number of employees Finance cost is allocated: 30% - Producing; 40% - Finishing; 15% Maintenance; 15% - Personnel 3. The plant wide factory overhead rate based on direct labor hours after allocating the service cost using step method is: a. P39.50 per DLH c. P56.52 per DLH b. P26.31 per DLH d. P43.16 per DLH

2,826,000 =P 56.52/ DLH 50,000 4. Using direct method to allocate service department cost, the factory overhead rate for Producing Department is: a. P43.40 per DLH c. P87.13 per DLH b. P56.52 per DLH d. P28.68 per DLH DIRECT METHOD Maintenance 300,000 (300,000) -

Service Personnel 400,125 (400,125)

Finance 150,875 (150,875)

Maintenance Allocation: Maintenance to Producing: (500 / 800) x 300,000 = 187,500 Maintenance to Finishing: (300 / 800) x 300,000 = 112,500 Personnel Allocation: Personnel to Producing: (50 / 75) x 400,125 = 266,750 Personnel to Finishing: (25 / 75) x 400,125 = 133,375 Finance Allocation Finance to Producing: (30/70) x 150,875 = 64,661 Finance to Finishing: (40/70) x 150,875= 86,214

Production Producing Finishing 1,000,000 975,000 187,500 112,500 266,750 133,375 64,661 86,214 1,518,911 1,307,089 Producing:

1,518,911 =P 43.40/ DLH 35,000

Cost Accounting and Control 2019 Edition Problem and Solutions NBA Manufacturing Company is considering the use of departmental rate (Sewing Dept. based on machine hours & Treating Dept. based on direct labor hours) or plant wide rate (based on direct labor hours) in applying overhead. The following budgeted data is available for NBA Manufacturing Company: Sewing Dept P 6,000 10,000 15,000 8,000 5,000 25,000 7,000 76,000 1,250 4,000 80 100

Supplies Supervisor’s salary Other indirect labor Depreciation Repairs Utilities Insurance Total budgeted overhead Estimated total machine hours Total direct labor hours Machine hours on Job No. 4 Direct labor hours on Job No. 4

Treating Dept P 4,000 15,000 49,000 50,000 6,000 50,000 8,000 182,000 2,500 5,200 250 380

5. The amount of overhead-applied to Job No. 4 using departmental rate is a. P258,000 c. P18,164 b. P7,160 d. P10,615 Sewing:

Treating:

76,000 =P 60.8 x 80=P 4,864 1,250

182,000 =P 35 x 380=P13,300 5,200

Overhead applied: 4,864 + 13,300 = P18,164 6. The amount of overhead applied to Job No. 4 assuming a plant wide rate is used is a. P16,115 c. P13,459 b. P14,664 d. P10,665

258,000 =P 28.04 x 480=P 13,459 9,200 Considerable Corporation applies overhead based upon machine hours. Budgeted factory overhead was P266,400 and budgeted machine hours were 18,500. Actual factory overhead was P287,920 and actual machine hours were 19,050. Before disposition of under/overapplied overhead, the cost of goods sold was P560,000 and the ending inventories were as follows: Direct materials Work in Process Finished goods

P 60,000 190,000 250,000

7. Assuming the variance is closed to all accounts with overhead elements, the entry to dispose of the variance include: a. b. c. d.

Debit cost of goods sold for P13,600 Debit Manufacturing overhead for P13,600 Debit cost of goods sold for P7,616 Credit cost of goods sold for P13,600

Applied OH:

266,400 =P 14.4 x 19,050=P 274,320 18,500

Actual OH – Applied OH

WIP (190K/1M) x 13,600 = 2,584 FG (250K/1M) x 13,600 = 3,400 COGS (560K/1M) x 13,600 = 7,616 (Debit)

Cost Accounting and Control 2019 Edition Problem and Solutions 287,920 – 274,320 = 13,600 underapplied Michellin Company manufactures two products: car wheels and truck wheels. To determine the amount of overhead to be assigned to each product line, the accountant, Melvin Santos, has developed the following information: Estimated units of production Budgeted DLH per wheel Actual production Actual DLH utilized

Car Wheels 80,000 2.5 at P40 / H 75,000 190,000 H @ P38.50

Truck Wheels 20,000 4 at P40 / H 18,000 82,500 H @ P38.50

The total estimated overhead costs for the two product lines are P7,350,000.

8. The conversion cost component per unit of each product lines using traditional method of allocating overhead based on direct labor hours is: Car Wheels Trucks a. P154 P267 b. P168 P293 c. P157 P264 d. P164 P297

7,350,000 7,350,000 = =P26.25 ( 80,000 x 2.5 ) +(20,000 x 4) 280,000 Car Wheels Overhead: 190,000 x 26.25 = 4,987,500 Direct Labor (190,000 x 38.50) Factory Overhead Conversion costs Divided by production units Conversion cost per unit

Truck Wheels Overhead: 82,5000 x 26.25 = 2,165,625 7,315,000 4,987,500 12,302,500 75,000 P164

Direct Labor (82,500 x 38.50) Factory Overhead Conversion costs Divided by production units Conversion cost per unit

3,176,250 2,165,625 5,341,875 18,000 297

Highspeed Manufacturing Company manufactured ladies apparel. Charges to work in process account show: Direct materials used Direct labor costs Factory overhead

P341,000 324,500 259,600

At the end of the period, two orders are still in process, upon which direct materials of P70,000 have been expended.

Factory overhead is applied at a predetermined rate of direct labor costs. Goods manufactured for the period amounted to P825,400.

9. The factory overhead component of the goods manufactured is: a. P246,400 c. P259,600 b. P248,400 d. P13,200 Goods put into process Goods manufactured Cost of goods still in process

(341,000 + 324,500 + 259,600)

925,100 (825,400) 99,700

Conversion cost still in process Direct Labor cost still in process FOH still in process

(99,700 – 70,000) (29,700 / 1.80)

29,700 (16,500) 13,200

FOH component of goods put into process FOH still in process FOH component of goods manufactured

259,600 (13,200) 246,400

Cost Accounting and Control 2019 Edition Problem and Solutions

Cost Accounting and Control 2019 Edition Problem and Solutions BBB Company budgeted total variable overhead at P180,000 for the current period. In addition, the company budgeted costs for factory rent at P215,000, depreciation on office equipment at P12,000, office rent at P92,000 and depreciation of factory equipment at P38,000. All these costs were based upon estimated machine hours of 80,000. At the end of the period, the factory overhead control account had a balance of P387,875. Actual machine hours were 70,000.

10. The over or under applied overhead for the period is: a. P9,000 over c. P82,000 over b. P9,000 under d. P82,000 under Budgeted OH Budgeted Factory Rent Dep. Factory Equipment Total Budgeted OH

180,000 215,000 38, 000 433,000

Applied Overhead

433,000 =5.4125 x 70,000=378,875 80,000

Actual OH – Applied OH 387,875 – 378,875 = 9,000 underapplied

ASAP Company produces two products (A and B). Direct materials and labor costs for Product A total P35 per unit (which reflects 4 dlh); direct materials and labor costs for Product B total P22 (which reflects 1.5 dlh). Three overhead functions are needed for each product. Each unit of Product A uses 2 hours of function 1 at P10 per hour, 1 hour of function 2 at P7 per hour and 5 hours of function 3 at P18 per hour. Product B uses 1, 8 and 1 hour and 5 hours of respectively. ASAP Company produce 800 units of Product A and 8,000 units of Product B each period.

11. The total factory costs added during the period amounts to a. P121,600 c. P765,600 b. P848,000 d. P969,600 Product A Prime Costs A (800 units x 35) B (8,000 units x 22) Overhead Function 1 A (800 x 2 x 10) B (8,000 x 1 x 10) Function 2 A (800 x 1 x 7) B (8,000 x 8 x 7) Function 3 A (800 x 5 x 18) B (8,000 x 1 x 18) Total factory costs

Product B

Total

28,000 176,000

204,000

80,000

96,000

448,000

453,600

144,000

216,000 969,900

16,000 5,600 72,000

Villar Company estimated Department A’s overhead at P255,000 for the period based on an estimated volume of 100,000 direct labor hours. At the end of the period, the factory overhead account for Department A was charged with P265,500; actual direct labor hours used were 105,000.

12. The over or under applied overhead for the period is: a. P2,250 over c. P15,000 over b. P2,250 under d. P15,000 under Applied OH:

255,000 =P 2.55 x 105,000=267,750 100,000

Actual OH – Applied OH 265,500 – 267,750 = 2,250 overapplied

Cost Accounting and Control 2019 Edition Problem and Solutions

Cost Accounting and Control 2019 Edition Problem and Solutions Lily Corporation has two productions departments, fabrication and assembly, and has three service departments, general factory administration, factory maintenance, and factory cafeteria. The costs of the general factory administration department, factory maintenance and factory cafeteria are allocated on the basis of direct labor hours, square footage occupied, and number of employees, respectively. A summary of costs and other data for each department prior to allocation of service department costs for the period just ended appears below: DL costs DM costs FOH costs DL hrs.

Employees Sq. footage occupied

Fabrication P1,950,000 3,130,000 1,650,000 562,500 280

Assembly P2,050,000 950,000 1,850,000 437,500 200

General Factory P90,000 70,000 31,000 12

Factory Maint P82,100 65,000 56,100 27,000 8

Factory cafeteria P87,100 91,000 62,000 42,000 20

88,000

72,000

1,750

2,000

4,800

13. Assuming that Legend elects to distribute service department costs directly to production departments without inter-service department cost allocation, the amount of general factory administration departments which would be allocated to the assembly department would be: a. P0 c. P90,000 b. P70,000 d. P117,760 General Factory Allocation: GFA to Fabrication: (562,500 / 1M) x (90,000 + 70,000) = P90,000 GFA to Assembly: (437,500 / 1M) x (90,000 + 70,000) = P70,000 Havianas Manufacturing Company does not maintain backup documents for the computer files. In June, some of the current data were lost, and you have been asked to help reconstruct the data. The following beginning balances are known as of June 1.

Direct materials inventory Work in process inventory Finished goods inventory Actual factory overhead Accounts payable

P12,000 4,500 11,000 16,500 6,000

Reviewing old documents and interviewing selected employees, the following information was gathered: a. The job cost sheets showed materials of P2,600 were included in the June 30 work in process inventory. Also, 300 direct labor hours have been utilized at P6 per hour on the work in process at June 30. b. The accounts payable account is for direct materials only. The clerk remembers clearly that the balance in the accounts payable account on June 30 was P8,000. An analysis of canceled checks shows payments of P40,000 were made to suppliers during the month. c. Payroll records show that 5,200 direct labor hours were recorded for the month. It was verified that there were no variations in pay rates among employees during the period. d. Records at the warehouse indicate that finished goods inventory totaled P16,000 on June 30. e. The predetermined overhead rate was based on an estimated 60,000 direct labor hours to be worked during the year, and an estimated P180,000 in factory overhead costs. f. Another records kept manually indicated that cost of goods sold in June totaled P84,000.

14. The costs of goods manufactured in June amounts to: a. P11,000 c. P84,000 b. P49,000 d. P89,000 Cost of goods manufactured Finished goods, beginning Finished goods, end Cost of goods sold

89,000 11,000 (16,000) 84,000

Cost Accounting and Control 2019 Edition Problem and Solutions Pearl Company uses normal costing system, Partially completed T-accounts and additional information for the year are as follows: 1/1

Materials 30,000 400,000

380,000

1/1

1/1

Finished Goods 10,000 940,000

900,000

1/1

Work in Process 20,000

Accrued payroll 20,000 400,000

Additional Information: a. Direct labor rate was P20 per hour b. Manufacturing overhead was allocated at P28 per direct labor hour. c. During the year, sales revenue were P1,090,000 d. Various manufacturing overhead incurred were: Depreciation of factory plant Rentals Utilities Indirect labor Indirect materials

P 40,000 360,000 60,000 40,000 20,000

15. If over or under allocated overhead is written off to cost of goods sold, then gross profit would be a. P150,000 c. P190,000 b. P178,000 d. P202,000 DM DL OH TMC WIP, beg WIP, end COGM FG, beg FG, end COGS OH variance Adjusted COGS

380,000 420,000 588,000 1,388,000 20,000 (468,000) 940,000 10,000 (50,000) 900,000 68,000 832,000

DL Divided by: DLH

420,000 20 21,000

Applied OH (21,000 x 28) Actual OH OH variance

588,000 520,000 (Overapplied) 68,000

Sales COGS Gross Profit

1,090,000 832,000 258,000 (not in the choices)

940,000

420,000

Cost Accounting and Control 2019 Edition Problem and Solutions The predetermined overhead rate is P6.10 per direct labor hour. Job 123 required 210 direct labor hours of which 150 hours were incurred during the current accounting period.

16. How much overhead should be applied to Job 123 during the current accounting period? a. P366 c. P1,218 b. P915 d. P1,281 150,000 x 6.10 = P915

The overapplied balance of the Factory Overhead ledger account is P36,000, a significant amount. The ending accounts of Goods in Process Inventory, Finished Goods Inventory and Cost of Goods Sold accounts are P12,000, P8,000 and P60,000 respectively.

17. On the basis of ending balances, how much of the overapplied balance be allocated to each of these accounts? a. P5,400, P3,600, P27,000 b. P12,000, P12,000, P12,000 c. P12,000, P4,000, P20,000 d. P3,600, P5,400, P24,000 Goods in Process Finished Goods Cost of Goods Sold

(12,000 / 80,000) x 36,000 (8,000 / 80,000) x 36,000 (60,000 / 80,000) x 36,000

5,400 3,600 27,000