CHAPTER 7 - ACCOUNTING FOR FACTORY OVERHEAD

Problem 1 Denmark Company

FO rate = 216,000
216,000
90,000
72,000 units
240%of DMC P3.00/unit
Problem 2 - Colossal Corporation
FO rate = 207,000
207,000
500,000
52,100 units
41,40%of DMC

P3,97/unit

216,000
1,600 MHrs.
P135/MHr.

P3.00/MHr

= 16,000 Hrs. x P4.50

P2.44/DLHr. 27.06%ofDLC

P 4.50/DLHr.

P 72,000

Job 124
1,080
940
1,692
3,712

Job 124
940
180%
1,692

Job 125
1,400
180%
2,520

Job 126
5,120
180%
9,216

Job 125
720
1,400
2,520
4,640

Job 126
4,200
5,120
9,216
18,536

TOTAL
6,300
8,060
14,508
28,868

Problem 5 Rubi Company

1. FO rate

207,000
765,000

P 69,000
72,000
( P 3,000)

Problem 4 - Ellery Corporation

1.
Job 123
Direct labor cost
600
FO rate
180%
Applied FO
1,080
Job 123
DM
300
DL
600
FO
1,080
TOTAL 1,980

90% of DLC P4.50/DLHr.

3. Actual FO
Less: Applied
Overapplied FO

2.

216,000
48,000 DLHrs/

207,000
207,000
69,000 MHrs. 85,000 DLHrs.

Problem 3 Manila Company

1. FO rate = P67,500/15,000 DLHrs.
2. Applied FO

216,000
240,000

P 60,000
P 60,000

P 60,000
40,000 DLHrs.

P60,000
25,000 MHrs.

100%of DLC

P 1.50/DLHr.

P2.40/MHr.

``

Page 2
2.
a) Factory overhead was based on direct labor cost
JOB 101 JOB 102
JOB 103
JOB 104
DM
5,000
7,000
8,000
9,000
DL
7,200
10,000
11,000
9,000
FO APP/.
7,200
10,000
11,000
9,000
TOTAL
19,400
27,000
30,000
27,000

JOB 105
10,000
15,000
15,000
40,000

JOB 106
11,000
4,200
4,200
19,400

b). Factory overhead was based on direct labor hours

JOB 101 JOB 102
JOB 103
JOB 104
DM
5,000
7,000
8,000
9,000
DL
7,200
10,000
11,000
9,000
FO APP.
7,500
9,000
9,750
8,400
TOTAL
19,700
26,000
28,750
26,400

JOB 105
10,000
15,000
15,750
40,750

JOB 106
11,000
4,200
4,500
19,700

c( Factory overhead was based o machine hours

JOB 101 JOB 102
JOB 103
JOB 104
DM
5.000
7,000
8,000
9,000
DL
7,200
10,000
11,000
9,000
FO APP.
7,200
7,680
9,600
8,160
TOTAL
19,400
24,680
28,600
26,160

JOB 105
10,000
15,000
15,000
40,000

JOB 106
11,000
4,200
3.600
18,800

Problem 6 Thermal Corporation

1. Direct method
Direct cost
Allocated cost
S1
S2
Total
Base
FO rate

P1___
P 90,000

P2___
P 60,000

S1___
P 20,000

10,000
20,000
P120,000
50,000 MHrs.
P 2.40/MHr.

10,000
12,000
P 82,000
20,000 DLHrs
P 4.10/DLHr.

( 20,000)

P1___
P 90,000

P2___
P 60,000

2,000
30,000
P122,000
50,000 MHrs.
P 2.44/MHr

2,000
18,000
P 80,000
20,000 DLHrs
P 4.00/DLHr.

S2___
P 32,000

( 32.000)

2. Step method
Direct cost
Allocated cost
S1
S2
Total
Base
FO rate

S1____
P 20,000

S2___
P 32,000

( 20,000)

16,000
( 48,000)

3. Algebraic method
Direct cost
Allocated
S1
S2
Total
Base
FO rate

P1___
P 90,000

P2___
P 60,000

S1___
P 20,000

S2____
P 32,000

3.143
28,572
P121,715
50,000 MHrs.
P 2.43/MHr.

3,143
17,143
P80,286
20,000 DLHrs
P 4.0/DLHr.

( 31,429)
11,429

25,143
( 57,143)

S1 -= 20,000 + 20% S2
S2 = 32,000 + 80% S1
S1
S1 - .16S1
S1

S2

=
=
=
=
=

20000 + 20%( 32,000 + 80% S1)

20,000 + 6,400 + .16 S1
26.400
26,400/.84
31,429

= 32,000 + 80% 31,429

= 32,000 + 25,143
= 57,143

Problem 7 High Density Corporation

1. Direct method
Insertion Assembly
Direct cost
685,000
795,000
Allocated
Bldg. occupancy
63,158
116,842
Accounting
100,227
144.773
Maintenance
132,955
192.045
Total
981,340
1,248,660

Occupancy Accounting Maintenance

180,000
245,000
325,000
(180,000)
( 245,000)
( 325,000)

2. Step method
Direct cost
Allocated cost
Occupancy
Accounting
Maintenance
Total

Insertion Assembly
685,000
795,000

Occupancy Accounting
180,000
245,000

55.728
94,480
147,365
982,573

( 180,000)

103,096
136,471
212,860
1,247,427

11,146
(256.146)

Maintenance
325,000
10,030
25,145
(360,175)

Problem 8 - Central Parkway Corp.

Direct cost
Allocated
S1
S2
Total
S1
S2
S1
S1 - .025 S1
S1

S2

P1___
120,000

P2____
80,000

13,333
8,333
141,666

6,667
6,667
93,334

S1___
25,000

S2___
10,000

( 26,667)
1,667

=
=

25,000 + 10% of S2
10,000 + 25% of S1

=
=
=
=
=

25,000 + 10% ( 10,000 + .25S1

25,000 + 1,000 + .025S1
26,000
26,000/.975
26,667

=
=

10,000 + .25(26,667)
16,667

6,667
(16,667)

Problem 9 Megastar Company

Fixed
Variable

Total
34,200
41,800
76,000

95,000 Mach. Hrs.

Per Mach.Hr.
0.36
( 34,200/95,000)
0.44
( 41,800/95,000)
0.80

1.

Actual factory overhead

Less: Applied (100,000 x .80)
Overapplied factory overhead

P 78,600
80,000
( 1,400)

2.

Actual factory overhead

Less: Budget allowed on actual hours
Fixed
34,200
Variable (100,000 x .44)
44,000
Spending variance unfavorable

P 78,600

Budged allowed on actual hours

Less: Applied factory overhead
Idge capacity variance favorable

P 78,200
80,000
( 1,800)

3.

78,200
400

Page 5
Problem 10 - Abner Company

Fixed
Variable
Total

72,000 units
Per unit
P 0.47
(33,840/72,000)
4.20
(72,000 x 4.20)
P 4.67

TotalP 33,840
302400
P336,200

1.

Actual FO
Less: Applied FO 5,400 units x P 4.67
Underapplied FO

P 15,910
25,218
(P 9.308)

2.

Actual FO
Less: Budget allowed on actual hours
Fixed (33,840/12 months)
Variable ( 5,400 x 4.20)
Spending variance favorable

P 15,910

3.

2,820
22,680

Budged allowed on actual hours

Less: Applied
Idle capacity variance unfavorable

25,500
( P 9,590)
P25,500
25,218
P 282

Problem 11 - Norman Corporation

1.
Variable rate/hour = 270,000 252,000
60,000 - 48,000
= P1.50/DLHr.
2.
Total
Less: Variable
(60,000 x 1.50)
(48,000 x 1.50)
Fixed
2.

High
270,000

Low
252,000

90,000
_______
180,000

72,000
180,000

Actual factor overhead

Less: Applied ( 60,000 x 90%) x 5.25
Overapplied FO
FO rate =

252,000
48,000

= 5.25/ DLHrs.

273,000
283,500
( 10,500)

Page 6
3.
Actual factory overhead
Less: Budget allowed on actual hours
Fixed
Variable (54,000 x 1.50)
Spending variance
4.

273,000
180,000
81,000

Budget allowed on actual hours

Less: Applied
Idle capacity variance

261,000
12,000
261,000
283,500
( 22,500)

Problem 12 - Blanche Corporation

1.

Variable rate/ = 356 ,250 - 348,750

47,500 - 45.000

2.
Total
Less: Variable
45,000 x 3
47,500 x 3
Fixed
3.

P3.00/DLHr.

90% capacity
348,750

95% capacity
356,250

135,000
_______
213,750

142,500
213,750

Actual factory overhead

Less: Applied ( 42,500 DLHrs x 7.50)
Underapplied factory overhead

Problem 13 - Bulilit Company

1)
Direct materials (50 x P120)
(100 x P120)
Direct labor
Factory overhead applied ( 100 x P25)
(400 x P25)
Total costs
Divide by number of units
Cost per unit

445,000
318,750
126,250

Product A
P 6,000
2,000
2,500
________
P 10,500
50__
P 210.00

Product B
P 12,000
8,000
10,000
P 30,000
100_
P 300.00

Factory overhead rate = Est. Factory overhead

Est. direct labor hours
= P200,750/ 8,030
= P 25.00/ per direct labor hour

Page 7
2)
Direct materials
Direct labor
Factory overhead applied
Mat. Handling ( 20 x
( 50 x
Setup
( 5x
( 8x
Design changes ( 2 x
( 5x
No. of parts
( 10 x
( 15 x
Total costs
Divide by number of units
Cost per unit

Product A
P 6,000
2,000
P 50 )
P 50)
P 200)
P 200)
P 107.50)
P 107.50)
P 100)
P 100)

Factory overhead rate

Mat. Handling P60,000/1,200
Setup
P 80,000/ 400
Design changes P 10,750/ 100
No. of parts
P 50,000/ 500

=
=
=
=

Product B
P 12,000
8,000

1,000
2,500
1,000
1,600
215
537.50
1,000
________
P 11,215
50__
P 224.30

1,500
P 26,137.50
100___
P 261.38

P 50/ times handled

P 200/setup
P 107.50/change
P 100/part

Problem 14 Setup
( 1 x P 100)
Inspections ( 20 x P 20)
Mat. Moves ( 30 x P 10)
Eng. Hours ( 10 x P 50)
Total factory OH

Job 101
P 100
400
300
500
P 1,300

Job 102
( 2 x P100) P 200
( 10 x P 20)
200
( 10 x P 10)
100
( 50 x P50)
2,500
P 3,000

Factory overhead rate

Setup
P 20,000/200
Inspections P 130,000/6,500
Mat. Moves P 80,000/8,000
Eng. Hrs.
P 50,000/1,000

=
=
=
=

(4 x P100)
(30 x P20)
( 50 x P10)
( 10 x P50)

P 100/setup
P 20/inspection
P 10/move
P 50/hour

Job 103
P 400
600
500
500
P 2,000

Page 8
TRUE/FALSE
1. True
2. False
3. True
4. True
5. True
MULTIPLE CHOICE
1.
c
6.
2.
c
7.
3.
d
8.
4.
c
9.
5.
7,000 fav.
10.
`

6.
7.
8.
9.
10.

c
c
c
c
c

True
True
True
False
True

11.
12.
13.
14.
15.

11.
a
12.
13.
d
14. 137,500 hrs.
15.
d

False
False
True
True
True

16.
b
17.
c
18 39,000 UA
19.
a
20.
c
21.
b
22.
a
23.
a