ACCOUNTING FOR OVERHEAD manufacturing overhead to cost objects for a specific

INTRODUCTION TO OVERHEAD reporting period.

Cost Classification as to Function: - In layman’s term: We only estimate the total overhead
1. Manufacturing Costs - all costs incurred in the factory cost for the period using a specific allocation rate. We
to convert raw materials into finished goods. do not use the actual overhead costs incurred.
a) Direct Materials- raw materials cost that
becomes an integral part of the finished 2. WHY DO WE USE THE POH
product. 1. It allows an entity to get immediate cost information for
b) Direct Labor- all labor costs related to time decision-making and pricing decisions without the need
spent on products. to wait for the actual overhead costs which take time to
c) Overhead- all other costs incurred in the accumulate.
factory aside from direct materials and 2. When overhead rates are predetermined, it allows
direct labor. uniform costing whatever season or circumstance the
company is into.
2. Non-Manufacturing Costs - all costs which are not 3. Within the relevant range, there will be no problems on
incurred in transforming materials to finished goods. fluctuations of activity levels and the costs related
a) Selling Costs - all costs associated with thereunto.
marketing or selling a product.
b) General and Administrative Costs - all
executive, organizational and clerical costs
associated with the general management of
the organization rather than with
manufacturing, marketing or selling.
Cost Classification as to Timing of Recognition as Expense:
1. Product Costs- costs that “attach” or cling to the units Remember that:
that are produced and are reported as ASSETS until the 1. Overhead and activity levels are budgeted by an entity
goods are sold. for the whole accounting period.
a) Direct Materials 2. The numerator and denominator in determining the
b) Direct Labor POH rate is being studied well based on management
c) Overhead estimates, past actual production, or other bases and
2. Period Costs- costs that are recognized as expense in targets.
the income statement on the period in which the cost
was incurred. Specified volume of activity (Base to be used):
a) Selling Costs The base to be used should be related to functions represented by
b) General and Administrative Costs the overhead cost being applied:
THEREFORE OVERHEAD IS: ● FOH is labor oriented – base should be direct labor
● Part of Product/Inventoriable cost hours / direct labor cost.
● Part of Total Manufacturing Cost ● FOH is investment oriented related to operation of
machinery – base should be machine hours.
● FOH is material oriented – base should be materials
cost.
OVERHEAD
- includes all costs incurred in the production process 1. DIRECT LABOR HOURS
which are not direct materials or direct labor, not ● The most commonly used base or denominator.
directly traceable to the products completed but are still ● The number of direct labor hours spent is readily
necessary to be incurred to convert raw materials to available in a payroll sheet.
finished goods. The formula is:
Examples: FOHR = Estimated Factory Overhead
● Indirect materials (glue, tape, cleaning supplies, oils) Estimated Direct Labor Hours
● Indirect labor (factory supervisor, factory janitor) = Factory Overhead Rate per direct labor hour
● Factory insurance
● Factory depreciation of equipment and machineries 2. DIRECT LABOR COST
● Repairs and maintenance of factory assets ● More reliable than material cost as labor
● Factory rent rates do not change as often.
● Factory utilities (heat, light, power, etc) ● A direct relationship between labor cost and
factory overhead is needed.
PREDETERMINED OVERHEAD RATE ● Just like direct labor hours, the direct labor
1. WHAT IS PREDETERMINED OH RATE? cost is readily available on the payroll sheet.
- A predetermined overhead rate is an allocation rate ● The formula is:
that is used to apply the estimated cost of
 e) Direct Labor Hour

3. MACHINE HOURS
● A direct relationship between machine hours and
factory overhead cost is needed.
● This may occur in companies or departments that are
largely automated so that majority of the factory
overhead cost consists of depreciation of factory
equipment.
● The formula is:

4. DIRECT MATERIAL COSTS

● A direct relationship between direct
materials and factory overhead cost is
needed.
● This may occur in companies where a very
large part of total cost is attributed to Direct
Materials.
● This is not an appropriate base to when NOTE:
more than one product is manufactured by a ● The FOHR computed is known as the plant-wide or
company. blanket rate.
● The formula is: ● All departments in the Company will use the same
application rate for manufacturing overhead and the
same base.
● Applicable for entities who:
○ Manufacture only a single product
○ Manufacture different products that go
through the same series of productive
5. UNITS OF PRODUCTION
departments (e.g. Ice cream)
● This is the most simple method to use
because units produced are readily available.
DEPARTMENTAL RATE
● This method is appropriate when a company
● Shall be used when different products are being
or a department manufactures only one
manufactured by an entity.
product.
● Also applicable when products do not pass through the
● The formula is:
same series of productive departments.
● Compute for the estimated factory overhead per
department/segment/cost centers.
● Determine the applicable base.
● Apply the same formula

SAMPLE PROBLEM: NORMAL COSTING

Gento Gento Company estimates factory overhead at P450,000 is a costing system that is used to determine the costs of producing
for the next fiscal year. It is estimated that 90,000 units will be products by using the actual costs of direct labor and direct
produced at a material cost of P600,000. Conversion will materials and an allocation method for overhead.
require an estimated 100,000 direct labor hours at a cost of
P3.00 per hour, with 45,000 machine hours.
Required: Compute the predetermined factory rate based on:

a) Material Cost
b) Units of production
c) Machine Hours
d) Direct Labor cost
OVERHEAD VARIANCE
1. With the use of actual costing:
ACTUAL OVERHEAD = APPLIED OVERHEAD
since actual amount of overhead is being applied to production

2. With the use of normal costing:

ACTUAL OVERHEAD ≠ APPLIED OVERHEAD
since MOH account is debited for actual overhead and the
MOH account is credited for the amount of OH applied to
production.

1. ACTUAL OVERHEAD > APPLIED OVERHEAD

● MOH T-Account debit is greater than MOH
T-Account credit
● Overhead at the end of the period (before
adjustments) is UNDERAPPLIED.
2. ACTUAL OVERHEAD < APPLIED OVERHEAD
● MOH T-Account debit is lesser than MOH
T-account credit
● Overhead at the end of the period (before
adjustments) is OVERAPPLIED.

SAMPLE PROBLEM
At the start of the period, Halo Company still had inventories
unfinished with a total cost of P89,000. During the period, direct
SAMPLE PROBLEM materials used amounted to P288,000 and indirect materials
Sharon Cuneta incurred the following costs of production during amounted to P34,000. Direct labor amounted to P537 per day of an
the period: 8-hour work for all 26 days of production to 18 all direct laborers.
● Direct Materials, 4,000 units @P56 per unit Meanwhile, indirect labor cost amounted to P86,700. At the end of
● Indirect Materials, 1,000 units @P35 per unit the period, the direct materials component of the unfinished
● Direct Labor, 9,600 labor hours @70 per DLH inventories amounted to P24,000 and the direct labor component
● Indirect Labor, P96,400 P18,000. Overhead is applied at 120% of direct labor cost.
● Factory Rent, P120,000 Compute for the following using normal costing:
● Factory Depreciation, P42,000 1. Total manufacturing cost during the period
● Factory Utilities, P22,000 2. Work-in-process inventory, ending
Sharon applies manufacturing overhead at 50% of direct labor 3. Cost of goods manufactured
cost. How much are the following:
1. Total Manufacturing Cost
2. Overhead Variance
The following account balances were made available by Yonce
Manufacturing:

Activities for the production period were:

● Raw Materials net purchases, P386,000
● Direct labor cost incurred, P420,000
● Actual Overhead incurred- utilities P89,000; rent
P60,000; depreciation P45,000; indirect labor
P100,000; indirect materials P78,000
● Overhead application rate: 80% of direct labor cost for
the period
● Cost of goods sold at normal costing before period-end
adjustments P1,072,000
Prepare the following:
1. Initial cost of goods sold calculation under normal OVERHEAD VARIANCE
costing 1. Overhead Variance is immaterial:
2. Calculation of overhead variance ● The amount of variance is closed against
3. Entry to close the overhead variance to cost of goods COGS
sold (assuming variance is immaterial) ● If variance is Underapplied = COGS
4. Statement of cost of goods manufactured and sold Increases
assuming actual costing was used. ● If variance is Overapplied = COGS
Decreases
2. Overhead Variance is material:
● The amount of variance is closed and
prorated against the accounts in which
applied overhead resides: WIP Inventory,
FG inventory, and COGS.
NOTE:
● Under GAAP, we need to use actual cost. Hence, we
adjust the COGS.
● Adjustment is only done at the end because we only get
the data of our actual overhead at the end of the
reporting period.
● Normal costing is only used to fasten the accumulation
of cost information.
● Remember: Inventory is measured at what?
2. Applying the Overhead :
Work in Process Inventory xx
TYPES OF OVERHEAD
Manufacturing Overhead Control* xx
Types:
*amount is the computed POHR multiplied by the activity volume
for the period

3. Completion of Work in Process Inventory:

Finished Goods Inventory xx

Work In Process Inventory xx

OVERHEAD JOURNAL ENTRIES 4. Sale of Goods:

Recall the T-Account:
Cost of Goods Sold xx

Finished Goods Inventory xx

● To recap, the Factory Overhead account is not a typical

account. It does not represent an asset, liability,
expense, or any other element of financial statements.
Instead, it is a “suspense” or “clearing” account.
● Amounts go into the account and are then transferred
out to other accounts. In this case, actual overhead
goes in, and applied overhead goes out.
Journal Entries:
1. To Record Various Indirect Costs Actually Incurred
ALLOCATION, APPORTIONMENT, and ABSORPTION of
(indirect labor, indirect materials, and the depreciation OVERHEAD
cost of factory equipment):
ALLOCATION OF OVERHEAD
Factory Overhead Control xx ● When items of cost are identifiable directly with some
products or departments such costs are charged to cost
Salaries & Wages payable xx
centers. This process is known as cost allocation.
Supplies Inventory xx ● The complete distribution of an item of overhead to
the departments or products on a logical or equitable
Accu. Depreciation xx basis is called allocation.
● Where a cost can be clearly identified with a cost
center or cost unit, then it can be allocated to that
THE FOHC ACCOUNT:
particular cost center or unit
● FOHC is an accounting record used to track and control
the indirect manufacturing costs incurred in a
production process. COST ALLOCATION EXAMPLE
● It is a suspense account that represents the
accumulation of all manufacturing overhead costs ● Electricity charges can be allocated to various
during a specific accounting period. departments if separate meters are installed
● Depreciation of machinery can be allocated to various
departments as the machines can be identified
● Salary of stores clerk can be allocated to stores
department
● Cost of coal used in boilers can be directly allocated to
the boiler house division.
 ● Wages paid to workers of the service department can be A factory has 3 production departments (P1, P2, P3) and 2
allocated to the particular department. service departments (S1 & S2). The following overheads &
● Indirect materials used by a particular department can other information are extracted from the books for the month of
also be allocated to the department. January 2022:

ALLOCATION OF OVERHEAD
● Thus allocation is a direct process of identifying
overheads to cost units or cost centers. So the term
allocation means allotment of the whole item of cost
to a particular cost center or cost object without any
division.

APPORTIONMENT OF OVERHEAD
● Cost Apportionment is the allotment of proportions of
items to cost centers.
● When items of cost cannot be directly charged to or
accurately identifiable with any cost centers, they are
prorated or distributed amongst the cost centers on
some predetermined and suitable basis.
● Layman’s term: Apportionment of overhead costs
means to divide total cost of overhead among different
departments or branches or cost centers of a company
● With this, we can compare the revenue of each
department with their total cost. Then take decisions ALLOCATION vs. APPORTIONMENT
relating to a particular department. ● Allocation deals with the whole items of cost and
apportionment deals with proportion of items of cost.
Basis for Overhead Apportionment ● Allocation is direct process of departmentalization of
overheads, where as apportionment needs a suitable
basis for sub-division of the cost
● Whether a particular item of expense can be allocated
or apportioned does not depends on the nature of
expense, but depends on the relation with the cost
centre or cost unit to which it is to be charged

CONCLUSION
Allocation and apportionment of overheads and then absorption
of overheads helps for finding total cost of production for better
decision making for cost control and cost reduction.

SERVICE AND PRODUCING DEPARTMENTS

Introduction
APPORTIONMENT PROBLEM ● In a departmentalized company, factory overhead
● Total Rent = 5,000 pesos should be budgeted for each department.
● Area of production department is: ● Prior to the computation of the departmentalized
Dep A – 100sq foot factory overhead rate, management must make sure that
Dep B – 200sq foot the service department costs have been allocated to the
Dep C- 700sq foot producing departments.
● Now total ratio of A:B:C is 1:2:7
● Total Rent Expense will be Producing Department
Dep A = 5,000 x 1/10 = P500 ● These departments perform the primary purpose of the
Dep B = 5,000 x 2/10 = P1000 company—to produce goods and services for
Dep C = 5,000 x 7/10 = P3,500 consumers.
● Total overhead cost will be apportioned to different ● They are cost accumulation centers in which work is
departments on some basis. Basis of Rent performed directly on the goods being produced.
apportionment is the area of department. ● Examples of operating departments are the assembly
departments of manufacturing firms and the
APPORTIONMENT PROBLEM:
 departments in hotels that take and confirm ● This method allocates costs by explicitly
reservations. including the mutual services rendered
among all departments.
Service Department
● Service or support department is a unit in an
organization that contributes in a very indirect way to
the conversion of raw materials to finished goods. They
are, however and still, involved in producing goods.
● The costs of service departments are allocated to the
producing departments because they exist to support the
producing departments.
● This method of allocation makes it possible to assess
the department’s operational efficiency. If the internal
cost for a service is greater than the price charged by an SAMPLE PROBLEM
external supplier, the service department could be Vanesa Manufacturing has 4 departments. Assembly
considered for elimination. department and finishing department make up the production
● Examples: departments while the cafeteria and maintenance department
○ Purchasing, personnel, warehousing, make up the service departments.
maintenance departments. The overhead cost of the cafeteria is allocated based on the
number of employees while the overhead cost of the
maintenance department is based on the estimated overhead for
Methods of Allocating Service Department Costs the period.

1. Direct Method In determining the predetermined overhead rates, the assembly

● Is the most widely used method. department uses direct labor hours and the finishing department
● This method ignores any service rendered uses machine hours. The following information is made
by one service department to another. available:
● It allocates each service department’s total
cost directly to the producing departments.

1. DIRECT METHOD

2. Sequential/Step Method
● This method recognizes services rendered
by service departments to other departments.
● The sequence typically starts with the
department that renders service to the
greatest number of other service
departments and ends with the department
that renders service to the least number of
other departments.
● Once a service department’s costs are
allocated, no subsequent service department
costs are allocated to it.

2. STEP METHOD

3. Algebraic/Reciprocal Method
 C = 343,116.96
M = 152,710.62

3. ALGEBRAIC METHOD

COMPARISON OF THE 3 METHODS:

COST ACCOUNTING - Job Order Costing

Absorption of Overhead
● The ultimate aim of Overhead Accounting is to absorb
them in the product units produced by the firm.
● Thus, the indirect costs or overhead will have to be
distributed over the final products so that the charge is
complete.
● This process is known as cost absorption or
‘Absorption’ of overheads.
● FOH rate is used here!
OH Variance is material
When OH variance is material:
The amount of OH is closed and prorated against accounts in
which applied overhead resides: work-in process inventory,
finished goods inventory, and cost of goods sold.

ABC Company has the following account balances at the end

of the period, with their materials, labor and overhead
components:

Cost Flow/Inv Acc. Components

Cost Accounting
● refers to recording, classifying, and reporting all
costs aspects of company performance during a
particular period of time.
● It is a system that records, summarizes, analyzes,
and interprets the details of the cost of materials,
labor, and overhead necessary to produce and sell
an article or a product.
Job Order Costing
● Is a costing system that takes place when
Cost Accumulation Systems customers order small, unique batches of
● When silent, use normal costing. products.
● This system determines the price of each
individual product and ensures that the cost for
each product is reasonable enough for a customer
to purchase it while still making profit for the
company.
● Each job is prepared by batch or order in
accordance with the customer’s specifications.
● The cost of Materials, labor, and overhead applied
is accumulated for each job in a job cost sheet.
Cost Accumulation Procedures
● Job Order Costing When to use Job Order Costing:
● Process Costing ● Products that are manufactured within a
● Hybrid Costing department or cost center are heterogenous or
● Backflush Costing dissimilar.
 ● They are manufactured individually or in distinct ○ The date employees completed the job
lots or batches (each job requires different ○ The date the order was shipped to the
amounts of materials, labor, and overhead). customer
○ Customer information
Documents:
○ Job records information: overhead,
● Material Requisition Form: materials, and labor
○ The summary of the final cost of the job.

Businesses that use Job Order:

White Collar Businesses- accounting firms, private
investment companies, and law firms. Per Client.
Medical Service Businesses- hospitals, small doctor’s
offices, medical billing companies. Per Patient.
Film Studios and Production Companies- Per
Production.

Problem Solving
Florida Kilos produces special-order wood products. The
Company uses job order costing for pricing and cost
accumulation purposes. The following costs were
incurred on two recent jobs:

● Time Ticket: The company adds a 50% markup on cost in determining

the amount to charge for each job.
Prepare a schedule showing the cost and the amount to
be charged for each job.

● Job Cost Sheet

The Cinnamon Girl Company uses a job order costing

system which is based on normal costs, and overhead is
applied on machine hours. The inventories on October 1:
● This sheet is the main source for tracking an item direct materials, P2,000, finished goods, P5,000 (Job Order
to keep pricing and inventory accurate. No. 1000), work-in-process, Job Order No. 1001, the job had
● It tracks the following information: been assigned P130 for direct materials, P165 for direct
○ The date the job was started labor cost with 100 machine hours. Purchases of direct
materials, 30,000 pieces @ P1.40 per piece. Following are
the additional costs incurred during the month.

Manufacturing overhead costs are charged to jobs on the

basis of P1.50 per machine hour used. The actual
manufacturing overhead cost for the month totaled P30,350.
During October, Job Order Nos. 1001, 1002, 1004, and 1005
were completed. Jobs 1001 and 1002 were shipped out and
the customers were billed for P9,000 for Job No. 1001 and
P20,000 for 1002.

1. The cost of goods manufactured amounted to:

A. P55,495 B. P55,500 C. P56,495 D. P57,500

2. The work-in-process on October 31 amounted to: Accounting for Scrap

A. P25,675 B. P29,820 C. P43,770 D. P69,445 Scrap Materials defined:
● Refers to those that are unavoidable during production.
3. The cost of goods available for sale amounted to: ● Scrap includes:
A. P55,495 B. P60,495 C. P60,500 D. P61,495 ○ fillings or excessive trimmings of materials
○ defective materials that cannot be returned
4. The finished goods on October 31 amounted to: to vendor or not suitable for manufacturing
A. P 8,275 B. P17,400 C. P 30,675 D. P43,770 operations
○ broken parts as a result of an employee error
5. The cost of goods of goods sold amounted to: or machine breakdowns that cause the
A. P29,820 B. P29,375 C. P21,950 D. P7,870 product in a poor quality condition.
How should scrap be treated?
6. The gross margins on Jobs 1001 and 1002 ● Additional Revenue (if immaterial)
respectively amounted to: ● Reduction of Cost of Goods Sold – you can choose
A. P1,200 P 1,850 B. 1,130 ( 1,950) C. P1,150 P1,850 this in lieu of additional revenue. The effect on income
would be the same.
D. 1,130 (1,850)
● Reduction of Factory Overhead Control (if silent) –
it is not traceable to a particular job.
7. The direct materials on October 31 amounted to: ● Reduction in Cost of Materials / WIP traceable to a
A. P 5,000 B. P 7,000 C. P 30,675 D. P43,770 particular job.
● If the scrap has a salvage value, it should be collected
and placed in the storage and available for sale to scrap
dealers or anybody who is willing to buy.
● If the scrap is the result of filings, excessive trimmings
or materials residue, and the costs of scrap cannot be
 determinable then, the scrap, notwithstanding that they b. To record reuse of scrap:
cannot be eliminated in the production, a record of
quality of scrap should be maintained. The purpose is to WIP xx
keep track and periodically analyze to determine if Materials Inventory xx
some of the waste is due to inefficient use of materials
and if not eliminated, at least minimize.
Waste Vs. Scrap Accounting for Spoiled Goods
● Waste as distinguished to scrap materials refers to any Spoilage Defined:
amount of raw materials left-over from a production
process or production cycle for which there is no ● Either partially or fully completed units, for reasons of
further use. Waste is not usually salable at any price being spoiled, cannot be corrected because it is not
and must be discarded. technically possible to correct them, or it is not
● Note that the Journal Entries will vary depending on economical to correct them.
whether the scrap is recognized at the time of sale or ● Spoilage may either be:
production. ○ Charged to a Particular Job – due to
exacting specifications or customer-imposed
Scrap Journal Entries standards.
○ Charged to All Production / FOH – due to
1. Recognizing Scrap at the time of sale internal failure brought about by an
a. If the value of scrap is low or immaterial: employee error or worn-out delivery

Cash/AR xx Accounting for Spoilage:

Scrap Revenue xx ● Journal entries will depend on whether the spoilage is

due to customer specifications or due to internal failure.
b. If the scrap is attributable to a specific job: ● If the spoilage is due to customer specification, the
per unit cost will tend to be different as compared to its
Cash/AR xx per unit cost had there been no spoiled goods
WIP xx recognized
● If the spoilage is due to internal failure, per unit cost
c. If the scrap is attributable to all jobs: will not change.
● If spoilage loss is charged to all production, the cost of
Cash/AR xx goods would be the full unit cost which includes any
Manufacturing OH xx normal spoilage allowance. It is through this allowance
that the cost of spoiled goods is “spread” over the entire
production.
● If spoilage loss is charged to a specific job, spoilage is a
2. Recognizing Scrap at the time of production function of specific job requirements rather than
a. If the scrap is attributable to a specific job: general factory condition. Then, the overhead rate
should exclude any normal spoilage allowance.
Scrap Inventory xx
Summary:
WIP xx
b. If the scrap is attributable to all jobs:
Scrap Inventory xx
Manufacturing OH xx
c. b. If the scrap is sold (for both a and b):
Pro-forma Entries for Spoilage
Cash/AR xx
Scrap Inventory xx
3. If the scrap is sold at the amount more than or less than
its recorded value:
Cash/AR xx
WIP/Manufacturing OH (balancing figure) xx
Scrap Inventory xx Sample Problem 1:
WIP/Manufacturing OH (balancing figure) xx Get Free Company’s Job 501 for the manufacture of 2,200
units, which was completed during August at the unit costs
4. If the scrap is reused as direct materials rather than sold
presented below:
as a scrap:
a. To record return of scrap to the storeroom:
Materials Inventory xx
WIP/MOH xx
 WIP 112,000
PER UNIT COST 56.00
(112K/2,000)

CHARGED TO SPECIFIC JOB

WIP 121,000
Final inspection of Job 501 disclosed 200 spoiled units which Materials 44,000
were sold to a local jobber for P6,000. Payroll 39,600
MOH 37,400
1. Assume that spoilage loss is charged to all production or due
to internal failure during August. What would be the unit cost PER UNIT COST 55.00
of the product produced on Job 501? SALE OF SPOILED GOODS
CASH (AT SV) 6,000
CHARGED TO ALL PRODUCTION
WIP 6,000
WIP 123,200
TRANSFER TO FG
Materials 44,000
FG 112,000
Payroll 39,600
WIP 112,000
MOH 39,600
PER UNIT COST 57.50
PER UNIT COST 56.00
(115K/2,000)
SALE OF SPOILED GOODS
CASH (AT SV) 6,000
FOHC 5,200
WIP 11,200
TRANSFER TO FG
FG 112,000
WIP 112,000 Sample Problem 2:
PER UNIT COST 56.00
(112K/2,000) Suburban House manufactures picture frames of all sizes and
shapes and uses a job-order costing system. There is always
some spoilage in each production run. The following costs
relate to the current run:
2. Assume that the spoilage loss is attributable to the exacting
specifications of Job 501 (or production run) and is charged to
specific jobs. What would be the unit cost of the product
produced on Job 501?
CHARGED TO SPECIFIC JOB
WIP 121,000 The actual cost of a spoiled picture frame is P7.00. During the
year 170 frames are considered spoiled. Each spoiled frame can
Materials 44,000
be sold for P4. The spoilage is considered a part of all jobs
Payroll 39,600 (factory overhead).
MOH 37,400
PER UNIT COST 55.00 a. Labor hours are used to determine the predetermined
SALE OF SPOILED GOODS overhead rate. What is the predetermined overhead rate
per direct labor hour
CASH (AT SV) 6,000
b. Prepare the journal entry needed to record the spoilage
WIP 6,000 (factory overhead or to all production.
c. Prepare the journal entry if the spoilage relates only to
Job #12 (particular job or exacting specifications) rather
TRANSFER TO FG
than being a part of all production runs
FG 112,000
WIP 112,000 a.
PER UNIT COST 57.50 Budgeted Overhead P160,000
(115K/2,000) Budgeted Spoilage 25,000
Sales Value of spoiled frames (11,500)
Budgeted Costs 173,500
CHARGED TO ALL PRODUCTION
Divided by: Budgeted Labor Hours 100,000
WIP 123,200
Predetermined Overhead Rate P1.735/DLH
Materials 44,000
b.
Payroll 39,600
Spoiled goods inventory (P4 x 170) 680
MOH 39,600
FOHC (balancing figure) 510
PER UNIT COST 56.00
WIP Inv (P7x170) 1,190
SALE OF SPOILED GOODS
c.
CASH (AT SV) 6,000
Spoiled goods inventory (P4 x 170) 680
FOHC 5,200
WIP Inv 680
WIP 11,200
TRANSFER TO FG
FG 112,000