‘The machines will run about 160,000 hours. Required: The predetermined factory overhead rate based on: 1. Material cost 2. Units of production 3. Machine hours 4. Direct labor cost 5. Direct labor hours Problem 2 The Marco Company budgeted overhead at P510,000 for the period for Department A, on the basis of a budgeted volume of 200,000 direct labor hours. At the end of the period, the Factory Overhead Control account for Department A had a balance of 540,000; actual direct labor hours were 210,000 Required: 1. Compute for the overhead application rate 2. Compute for the applied factory overhead 3. Compute for the over=or underapplied overhead Problem 3 Marvin Company’s estimated factory overhead for the year was P 456,120 and the actual overhead was P 470,800. Machine hours were used in determining the factory overhead application rate. There were 84,500 actual machines and 81,450 estimated jine hours during the year. Prede oie/ ; Prepare journal entries to record the following The applied factory overhead actual factory overhead losing of the a300 1,080 940 720 1,400 4,200 5,120 n the basis of direct labor costs ch ing that factory overhead is applied or the predetermined rate is 180%, compute: 1. The amount of overhead to be added to the cost of each job completed 2. The total cost of each job completed during the month. Problem 5 Thermal Corporation has two producing department and two service dep labeled P1, P2, S1, and S2, respectively. Direct costs for each department proportion of services costs used by various departments are as follows: Cost Direct Proportion of services used by: Center Costs si 82 Pl 2 Pi = P_—-90,000 P2 60,000 SI 20,000 - 80 10 10 Ei S2 32,000 20 - 50 30 In calculating predetermined overhead rates, machine hours are used as the b and direct labor hours as the base in P2. : Pl P2 Machine hours 50,000 40,000 pret labor hours 40,000 20,000Departments’ to costs: ent | - Repair é Department 2 - Cafeteria 11,000 Producing Departments’ Factory OH Costs Department A - Machinery 52,500 Department B - Assembly 48,000 Additional information Department Square Feet Est. Direct Labor Hours Repair 1,500 3,500 Cafeteria 1,800 1,200 Machinery 2,000 2,300 Assembly 3,000 1,700 Total 8,300 The costs of the Repair Department are allocated on the basis of square feet. The costs of the Cafeteria Department are allocated on the basis of estimated direct labor hours. The producing departments use estimated direct labor — "hours: 1,500 in Department A and 1,250 in Department B. Allocate the total costs of the service departments to the producing its (compute the departments’ factory rate) by using the following: 1. Direct method 2. Step method - start with the Repair Department e departments labeled Pl, proportion of way Corp. has two producing and two servic ely. Direct costs for each department and the the various departments are as follows:rs Ba company’s normal operating capacity is estimated at 95,000 nac ‘month. At this operating level, fixed factory overhead is estimated to dis estimated to be P41,800. During Nove and variable factory overhea company operated 100,000 machine hours. ‘Actual factory overhead for totaled P78,600. 4 Required: Compute for the following 1. The over or underapplied factory overhead 2. The spending variance. 3. The idle capacity variance Problem 9 Normal annual capacity for Abner Company is 72,000 units, with fixed fa overhead budgeted at P33,840 and an estimated variable factory overhead rate f@ P4.20 per unit. During October, actual production was 5,400 units, with a overhead of P15,910. Required: Compute for the following 1. The applied factory overhead 2. The over or underapplied factory overhead 3. The spending variance 4, The idle capacity variance _ Problem 10 Norman Corporation uses a flexible budget system and prepared the fd information for 2012. Normal Capacity Maximum Capacity 80% 100% 48,000 | 60,000 foverhead P252,000 270,00 at normal capaci actunlieed ‘overhead: Factory overhead control P 30,500 Gr Applied factory overhead 39,700 d factory overhead costs are in the following accounts. Be Cost of goods sold P32,000 Ending work in process inventory 3,500 re Ending finished goods inventory 4,200 Required: a. Allocate the under or overapplied factory overhead to those accounts distorted by using what turned out to be an incorrect factory overhead application rate. b. Prepare the end-of-period entries. blem 12 many years Tinor Company has used a manufacturing overhead rate based on labor hours. A new plant accountant has suggested that the company may be to assign overhead costs to products more accurately by using an activity-based ting system. The accountant explains that by creating an overhead rate for each ion activity that causes overhead costs, the resulting product costs will reflect ‘accurate measure of overhead cost. The direct material cost is P120 per unit. The hours is 8,030 direct labor hours. The accountant has identified activity to which overhead costs are assigned. The cost pool amounts for these centers their selected activity drivers for 2012: ACTIVITY CENTERS Costs ACTIVITY DRIVERS _ Materials handling P 60,000 1,200 times handled _ Scheduling and setups 80,000 400 setups Design section 10,750 100 changes of parts _50,000 500 parts cts and other operating statistics follow: iny’s produ‘ aoe DLH DL No.of time No. ofIndicate abate a following pete ee false by inserting in space provided, a capital adil ji wanes r 1. Service departments are sometimes called indeterminate cost while production departments would be the final cost centers, 2. Service departments are production departments, such as a departments, that manufacture goods. 3. One of the purposes of service department cost allocation is to vs inventory for external financial reporting. 4 4. The direct method is a method of cost allocation that charges costs of service departments to user departments and ignores any services used by other service departments. 5. Under the step method of cost allocation, the final amount of pesos allocated to any production department is influenced by the order in which the allocation is made from the service departments. 6. If there are no interservice department activities, then all three allocation methods will give identical results. ‘ _7. When a plantwide rate is used, this means that a single rate used t0 allocate overhead to all departments in the company. 8. With the algebraic method, each department’s costs are set out in an equation where total costs equals the sum of direct costs and allocated costs. . Interservice departments activities are fully ignored by both the direct and step methods of cost allocation. ——__10. Overapplied overhead occurs when actual is less than applied OH. ——_1. The predetermined overhead rate is an amount obtained by dividing total overhead for the past period by the total overhead allocation b for the coming period, : ee 12) When overapplied overhea: bs ffect is to increase the balance on the Cost of Goods Sold account —— pis numerator reason refers to the overhead variance caiised by ee: WTerence between the estirnated and actual OH costs for the p - Tf all manufacturing overhead costs were variable, the ri co ume variance would always be zero, a + The si of the spending variance and the volume va ; overhead variance,‘overhead applied was P120,000, v hich of the following is always true of the a ect labor activity was overestimated. — ). Overhead was overapplied by P4,000. Overhead was underapplied by P4,000. This difference must be reported as a loss for the period. a, Out-of-pocket —b. Marginal ¢ only method of allocating service department costs to producing departments "that considers reciprocal services is called the ; a.. Direct method . Step method ¢. Out-of-step method d= Algebraic method In the determination of factory overhead application rates, the is the: | factory overhead for the next period factory overhead for the next period hours for the next perioda. Except for normal volume b. Except for practical capacity ¢. Except for expected activity d. For all three activity levels capacity level does not consider product demand, 6. Which productiv ble interruptions in same time accounts for anticipated and unavoidal Expected productive capacity Normal productive capacity Theoretical or maximum productive capacity ao oP Practical productive capacity 7. Which productive capacity level does not have provision for either a lack | orders or interruptions in production (due to work stoppages, machine maintenance, set-up time, holidays, weekends, ete. a. Expected productive capacity b. Normal productive capacity C. Theoretical or maximum productive capacity d. Practical productive capacity } Which productive capacity level is based on estimated prod Expected productive capacity bgservices between intermediate cost centers ‘to final cost centers. ignores services between intermediate cost centers — Linear algebra is required for the allocation department activities. . Ifa cause and effect relationship cannot be established for service d costs, then an allocation cannot be conducted. The level of detail associated with allocating service department costs s qd be decided on a cost-benefit basis.wing information Tor Ram Corporation relates: ics departments (total estimated costs) Building and ground maintenance Storeroom Producing departments (estimated factory overhead costs Department A Department B 42,000, 00 51,000. 00 Est. DL Hrs. Bst. Sq.Ft. No. of R Bldg. and ground maintenance 750 Storeroom 130 Department A 1,925 890 Department B 1,200 2,330 The base to be used for allocating the cost of Building and ground mainte square feet and for the storeroom cost is the number of requisitions, Direet labo are used to compute the producing departments’ factory overhead application 1. Using the direct method, what is Department A’s factory overhead rate? a. P 30.30 b. P4746 ) ©. P 55.70 d. P 60.53 2. Using the algebraic method, compute for the Building and Grounds: Department total amount to be allocated to the Storeroom Service Dep and both producing departments, (Take all calculations to four deci but round all answers to the nearest peso) w P 21,960 b. P22,5847,000 favorable is the total production variance? P4,000 unfavorable Producing Departments Service Departments D A : P15,000 P20,000 P80,000 of service by A to 10% 60% 30% of service by B to: 30% 20% 50% algebraic method, department A's cost stocaihie 4 ¥ 2 6. Using the algebraic method, department B’s cost allocated to d a. P 7,794 , oe b. P13,192 c. P14,021 d. P29,021 AMR Corp. currently uses a firm-wide overhead application based on labor hours . The following information is anticipated at the beg. of the year. Department A Department B Direct materials P 25.00/Ib. P 17.00/Ib. Direct labor hours 10,000 5,000 Machine hours. 2,000 10,000 Overhead P115,000 P 85,000 Labor rate P 15.00/hr P 12.00/hr 7. If the firm maintains the current method, the overhead application rate is: a. P 7.67/hr. b. P11.50/hr. . P13.33/hr. d. P20.00/hr. 8. If departmental rates were adopted, what would be the rates for Dep a (based on direct labor hours) and B (based on machine hours) A a. P1150 Pp $0 P 11.50manufacturing overhead costs ne the actual number of direct labor hours worked last year at ¢. 135,600 hours — d. 137,500 hours 9s uses a job-order cost system with machine hours as an overhead base. The ing information relates to D’Santos for last year: " Estimated machine hours for the year 42,000 |" Actual machine hours for the year 40,800 | Predetermined overhead rate P 1.50 per MH _ Underapplied factory overhead P 2,600 ; What is the peso amount of the following items? Estimated OH Applied OH Actual OH Pa. P 61,200 P 63,000 P 60,400 P 61,200 63,000 65,600 P 63,000 61,200 58,600 P 63,000 61,200 63,800 Company budgeted total variable overhead costs at P180,000 for the current In addition, they budgeted costs for factory rent at P215,000, costs for of office equipment at P12,000 costs for office rent at P92,000, and costs 3 on of factory equipment at P 38,000. All these costs were based i hours of 80,000. At the end of the period, the F : ‘a balance of P 387,875, Actual machin