Solution to Chapter 5

Exercise 5-1

Applied
Factory Actual Factory Under- (Over-
Overhead Overhead applied applied)
- (10,000)
Example 130,000 120,000
(12,000)
1. 135,000 123,000
10,900
2. 23,600 34,500
72,768
3. 43,500 116,268
(18,625)
4. 132,623 113,998
52,210
5. 33,200 85,410
44,252
6. 15,966 60,218
(15,471)
7. 31,128 15,657
21,536
8. 56,199 77,735
(594)
9. 127,696 127,102
(3,310)
10. 144,027 140,717
Exercise 5-2
1. Receiving Dept. - SD 6. Security - SD 11. Shipping - SD
2. Brewing - PD 7. Purchasing - SD 12. Personnel - SD
3. Mixing - PD 8. Assembly - PD 13. Maintenance - SD
4. Refining - PD 9. Bottling - PD 14. Fabricating - PD
5. Storage - SD 10. Canning - PD 15. Utilities - SD

Exercise 5-3
a) WIP 8/120 x 12,000 = P 800
FGI 38/120 x 12,000 = 3,800
CGS 74/120 x 12,000 = 7,400
FOC …………………………………………..P 12,000

b) just reverse the entry in a

c) WIP 4/50 x 12,000 = P 960

FGI 16/50 x 12,000 = 3,840
CGS 30/50 x 12,000 = 7,200
FOC …………………………………………..P 12,000
Problem 5-1
1.
Depreciation of factory machine 1,500
Salary of security guards 1,300
Rent of factory 700
Factory insurance 2,000
Factory Overhead 5,500

Salary of production workers (DL) 2,300

Raw materials used (DM) 6,500
Factory overhead 5,500
Total manufacturing cost 14,300

2. Actual FOH P250,000

Applied FOH 230,000
Underapplied OH P 20,000

Budgeted factory overhead = Overhead per unit

Budgeted direct labor hours
180,000 = P0.50 per direct labor hour
X
X = 360,000 DL hours

3.
a. 15,000 units x P30 = P450,000 (Direct Labor cost)
/ P20 per hour
22,500 DL hours

Budgeted factory overhead = Overhead per unit

Budgeted direct labor hours

P 630,000 = P28 per DL hour

22, 500 DLHs

b. Budgeted factory overhead = Overhead per unit

Budgeted direct labor cost

P630,000 = 1.4 or 140% of direct labor cost

P450,000

c. Budgeted factory overhead = Overhead per unit

Budgeted units of production

P630,000 = P42 per unit

15,000 units

d. Budgeted factory overhead = Overhead per unit

Budgeted direct labor cost
 P630,000 = 0.56 or 56% of DM cost
(P75 x 15,000)

e. Normal capacity = 15,000

75%

Normal capacity = 20,000 units

P630,000 = P31.50 per unit

20,000 units

4. Actual FOH P82,700

Applied FOH 72,660
Underapplied OH P10,040

5. Budgeted variable FOH (27,000 machine hrs x P3.5 per hr) P94,500
Budgeted fixed FOH 15,430
Total budgeted FOH P109,930

Predetermined FOH rate = P109,930 = P4.07 per hour

27,000 hrs

Applied FOH = P4.07 per hour x 3,500 hours

Applied FOH = P14,245
Actual FOH = 8,500
Overapplied OH = P 5,745

Problem 5-2
1. Predetermined FOH = P12,300,000 = P246 per choc. Fountain
50,000 choc. Fountain
Applied FOH = P246 x 64,000 = P 15,744,000
Actual FOH 13,890,000
Over-applied 1,854,000

Journal entries:

Work-in-process 15,744,000
Applied factory overhead 15,744,000
Overhead applied to production

Factory Overhead Control 13,890,000

Various accounts 13,890,000
Actual overhead incurred

Applied Factory Overhead 15,744,000

Factory overhead control 13,890,000
CGS 1,854,000
2. Applied FOH = 80% x P330,000 = P264,000
Actual FOH 250,000
Over-applied FOH P 14,000

Journal entries:

Factory Overhead Control 14,000

Cost of Goods Sold 14,000
To close over-applied
factory overhead to CGS

3. Allocation of P35,000 over-applied factory overhead:

Allocated
Inventories Balances Fraction Amount

Work-In-Process P 75,000 75/525 P 5,000

Finished Goods 150,000 150/525 10,000

Cost of Goods
Sold 300,000 300/525 20,000

Total P 525,000 P 35,000

Factory Overhead Control 35,000

Work-in-Process 5,000
Finished Goods 10,000
Cost of Goods Sold 20,000
To close over-applied
factory overhead

4. Additional information:

The following data pertain to Job 620:

P1 P2
Materials Cost P150 P100
Direct Labor hours 200 350
Machine hours 500 600
 Allocation bases for each service departments to producing departments:

S1 (no. of employees) S2 (machine hrs)

P1 90 64,000

P2 210 16,000

Total 300 80000

Allocation:
Cost Allocated P1 P2 Total

S1 100,000 90/300 30,000 210/300 70,000 100,000

S2 50,000 64000/80000 40,000 16000/80000 10,000 50,000

Total 150,000 70,000 80,000 150,000

Budgeted Factory Overhead (P1) = P410,000 + P70,000 = P480,000

Budgeted Factory Overhead (P2) = P304,000 + P80,000 = P384,000

PFOH rate (P1) = P480,000 = P7.5 per machine hour

64,000 machine hrs

PFOH rate (P2) = P384,000 = P3.84 per direct labor hour

100,000 DL hrs.

Applied FOH for Job 620 (P1) = P7.5 x 500 machine hours = P3750
Applied FOH for Job 620 (P2) = P3.84 x 350 direct labor hours = P1344

If plant-wide overhead rate is used based on direct labor hours:

PFOH = P864,000 = P6.4 per direct labor hour

135,000 DL hrs.

Applied FOH for Job 620 (plant-wide) = P6.4 x 550 direct labor hours = P3,520
1. a. Direct method

Cost Allocated X Y Total

Dept A P150 40/60 P100 20/60 P50 P150

Dept B P300 70/80 P262.50 10/80 P37.50 P300

Total P450 P362.50 P87.50 P450

 Department A = 0
Department B = 0
Department X = P5,000 + P362.50 = P5362.50
Department Y = P6,000 + P87.50= P6087.50

b. Step – down method

Departments

Producing Servicing

X Y A B

Cost P5,000 P6,000 P150 P300

Allocation:

Dept B 70% 210 10% 30 20% 60 -300

Dept A 40/60 140 20/60 70 -210

Total Allocation 350 100

Total Cost P5,350 P6,100

Department A = 0
Department B = 0
Department X = P5,350
Department Y = P6,100

c. Reciprocal method

Cost of service departments:

Department A = P150 + 20%(Department B)

Department B = P300 + 40%(Department A)

Department A = P150 + 20% [ P300 + 40%(Department A)]

Department A = P150 + 60 + 8%(Department A)
0.92 (Department A) = P210
Department A = P228.26

Department B = P300 + 40%(P228.26)

Department B = P300 + P91.30
Department B = P391.30

Departments
 Producing Servicing

X Y A B

Cost P5,000 P6,000 P150 P300

Allocation:

Dept B 70% 273.91 10% 39.13 20% 78.26 -391.30

Dept A 40% 91.30 20% 45.65 -228.26 40% 91.30

Total Allocation 365.21 84.78

Total Cost P5,365.21 P6,084.78

Department A = 0
Department B = 0
Department X = P5,365.21
Department Y = P6,084.78

Problem 5-3

Rapunzel Company:

Allocation of Service Department Costs:

a. Plant-wide overhead rate

Budgeted factory overhead = P320,000 + P540,000 + P150,000 + P250,000

Predetermined factory overhead rate = P1,260,000 = P36 per DL hour
35,000 DL hrs

b. Factory overhead of Job 507 based on plant-wide overhead rate

Factory Overhead = P36 per DL hour x 40 DL hours
Factory Overhead = P1,440

c. No, since the departments have different nature of operations and bases, wherein department
A is composed of workers, while department B is composed of machines. It would be
inappropriate to use a uniform basis, which is the number of direct labor hours.

Cost
DEPT A DEPT B Total
Allocated
 DEPT X P150,000 120/150 P120,000 30/150 P30,000 P150,000

DEPT Y P250,000 6/50 P30,000 44/50 P220,000 P250,000

Total P400,000 P150,000 P250,000 P400,000

d. Department A:
Predetermined FOH rate = P320,000 + P150,000 = P15.67 per DL hour
30,000 DL hrs
Department B:
Predetermined FOH rate = P540,000 + P250,000 = P17.95 per machine hour
44,000 machine hrs
e. Factory Overhead Cost of Job 507:
Department A = P15.67 x 30 DL hour = P470.10
Department B = P17.95 x 35 mach. Hr=628.25
Total P1098.35

Problem 5-4

Allocation of SDC Engineering Computer Science

F&T Maintenance P350,000 x 2/7 = P100,000
P350,000 x 5/7 = P250,000
Enrollment Service P950,000 x 24/60 = P380,000
P950,000 x 36/60 = P570,000
Total Allocated SDC P480,000 P820,000

Problem 5-5

F&T Maintenance provided to enrollment services = 5,000/8,000

Enrollment services provided to maintenance = 2,000/62,000
F&T Maintenance provides the greatest amount of service to support departments, so it is
allocated first.
F&T Maintenance P350,000to Enrollment Services = P350,000 x 5/8= P218,750
to Engineering = P350,000 x 1/8= P 43,750
to Computer Science = P350,000 x 2/8= P 87,500

Enrollment Service costs of P950,000 + P218,750 = P1,168,750

are allocated to Engineering and Computer Science
to Engineering = P1,168,750 x 24/60 = P467,500
to Computer Science = P1,168,750 x 36/60 = P701,250

F&T Maintenance Enrollment Service Engineering Computer Science

P350,000 P950,000
(P350,000) P218,750 P 43,750 P 87,500
 P 0 (P1,168,750) P467,500 P701,250
Totals P 0 P511,250 P788,750

Problem 5-6

a. Eng = P1,400,000 + 2/8 (FTM) + 24/62 (ES)

CS = P3,500,000 + 1/8 (FTM)+ 36/62 (ES)
FTM = P350,000 + 2/62 (ES)
ES = P950,000 + 5/8 (FTM)
b. Enrollment Service = P950,000 + 0.625 (FTM)
ES = P950,000 + .625 (350,000 + 2/62 ES)
ES = P950,000 + P218,750 + .02 ES
0.98 ES = P1,168,750
ES = P1,192,602
FTM = P350,000 + 2/62 (P1,192,602) = P388,471
Engineering = P1,400,000 + 2/8 (P388,471) + 24/62 (P1,192,602)
P1,400,000 + 97,118 + 461,652 = P1,958,770
CS = P3,500,000 + 1/8 (P388,471) + 36/62 (P1,192,602)
= P3,500,000 + P48,559 + P692,479
= P4,241,038

Problem 5-7

Operating Dept. SD
A B B&G Personnel
Departmental Costs b4 distribution of SDC: 650,000 800,000 54,000 200,000
Distribution of SDC:
B&G = 12:15 or 12/27 :15/27 24,000 30,000 (54,000)
Personnel = 45:55 90,000 110,000 ________ (200,000)
Departmental Costs after distribution of SDC 764,000 940,000 -0- -0-
÷ Direct Labor Hours ÷ 76,000 ÷ 92,000
Departmentalized OH rate P10.05 P10.217

a. Building & Grounds cost that would be

allocated to Department A is P24,000.

b. The predetermined overhead rate that would be used in Department B would

be closest to P10.22 per DL hour.

c.
 Operating Dept. SD
A B B&G Personnel
Departmental Costs b4 distribution of SDC: 650,000 800,000 54,000 200,000
Distribution of SDC:
B&G = 12:15:3 or 12/30 :15/30: 3/30 21,600 27,000 (54,000) 5,400
Personnel = 45:55 92,430 112,970 ________ (205,400)
c. Personnel Department costs allocated to
Department B is P112,970 w/c is 55% of P205,400.