22021_AC_CostAcctg

Long Quiz 2
Problems and Solution Guide
Problem 1:
Rolex Corporation estimates that its production for the coming year will be 10,000 units, which is
80% of normal capacity, with the following unit costs:

Materials P 80
Direct labor 120

Direct labor is paid at the rate of P25 per hour. The machine should be run for 20 minutes to
produce one unit. Total estimated overhead is expected to consist of P400,000 for variable
overhead and P400,000 for fixed overhead.

Requirements:

1. What is the predetermined overhead rate based on units of production, using the
expected capacity activity level?
Estimated Manufacturing Overhead Cost Overhead Cost per Unit of
=
Estimated Units of Production Production

P 400,000 + P 400,000
= P 80 per Unit of Production
10,000 units

2. What is the predetermined overhead rate based on material cost?

Estimated Manufacturing Overhead Cost
= Percentage of Materials Cost
Estimated Direct Materials Cost

P 400,000 + P 400,000
= 100% of Materials Cost
P 80 * 10,000 units

3. What is the predetermined overhead rate based on direct labor cost?

Estimated Manufacturing Overhead Cost Percentage of Direct Labor
=
Estimated Direct Labor Cost Cost

P 400,000 + P 400,000
= 66.67% of Direct Labor Cost
P 120 * 10,000 units

4. What is the predetermined overhead rate based on machine hours?

Estimated Manufacturing Overhead Cost Overhead Cost per Machine
=
Estimated Machine Hours Hour
 P 400,000 + P 400,000 Overhead Cost per Machine
=
(20 minutes/60 minutes) * 10,000 units Hour

P 800,000
= P 240 per Machine Hour
3,333.33333333333333333333333 hour

5. What is the predetermined overhead rate based on material cost, using the normal
capacity activity level?
Estimated Manufacturing Overhead Cost
Estimated Direct Material Cost (@ Normal = Percentage of Materials Cost
Capacity)

P400,000 + P400,000
= Percentage of Materials Cost
P 80 * (10,000 units/80%)

P400,000 + P400,000
= Percentage of Materials Cost
P 80 *12,500 units at normal capacity

P 800,000
= 80% of Materials Cost
P 1,000,000

6. What is the predetermined overhead rate based on machine hours, using the normal
capacity activity level?
Estimated Manufacturing Overhead Cost
Overhead Cost per Machine
Estimated Machine Hours (@ Normal =
Hour
Capacity)

P400,000 + P400,000
Overhead Cost per Machine
(20 minutes/60 minutes) * 12,500 units at =
Hour
normal capacity

P400,000 + P400,000 Overhead Cost per Machine

=
P 80 *12,500 units at normal capacity Hour

P 800,000
= P 192 per Machine Hour
4,166.666666666666666666 hours

Additional Sample Computation for Problem 1:

What is the predetermined overhead rate based on direct labor hours?
Estimated Manufacturing Overhead Cost Overhead Cost per Direct
=
Estimated Direct Labor Hours Labor Hour
 P 400,000 + P 400,000
Overhead Cost per Direct
(P 120 DL Cost per unit/ P 25 DLC per hour) =
Labor Hour
* 10,000 units

P 800,000 Overhead Cost per Direct

=
4.8 DLH per unit * 10,000 units Labor Hour

P 800,000
= P 16.67 per Machine Hour
48,000 DLH

Problem 2:
Data for the past two years for J & J Company are:

2013 2014
Units produced 10,000 11,500
Overhead applied per unit P 15 P 18
Actual overhead:
Fixed 50,000 55,000
Variable 95,000 150,000
Estimated overhead
Fixed 50,000 56,000
Variable 130,000 142,000

The company determines overhead rates based on estimated units to be produced.

Requirements:

1. What is the estimated units of production used to obtain overhead allocation rate in
2013?
Estimated Manufacturing Overhead Cost Overhead Cost per Unit of
=
Estimated Units of Production Production

P 50,000 + P 130,000
= P 15
Estimated Units of Production

P 180,000
= P 15
Estimated Units of Production

Estimated Units of Production = 12,000 units

 2. What is the estimated units of production used to obtain overhead allocation rate in
2014?
Estimated Manufacturing Overhead Cost Overhead Cost per Unit of
=
Estimated Units of Production Production

P 56,000 + P 142,000
= P 18
Estimated Units of Production

P 198,000
= P 18
Estimated Units of Production

Estimated Units of Production = 11,000 units

3. What is the overapplied (underapplied) overhead in 2013?

Applied Manufacturing Overhead
Actual Activity Level * Predetermined Overhead Rate
(10,000 units * P 15 per unit) P 150,000
Actual Manufacturing Overhead
(P 50,000 + P 95,000) 145,000
Overapplied MOH (Applied>Actual) P 5,000

4. What is the overapplied (underapplied) overhead in 2014?

Applied Manufacturing Overhead
Actual Activity Level * Predetermined Overhead Rate
(11,500 units * P 18 per unit) P 207,000
Actual Manufacturing Overhead
(P 55,000 + P 150,000) 205,000
Overapplied MOH (Applied>Actual) P 2,000

Problem 3:
The normal annual capacity for Nena Company is 48,000 units with production rates being level
throughout the year. The March budget shows fixed manufacturing overhead of P1,440 and an
estimated variable manufacturing overhead rate of P2.10 per unit. During March, actual output
was 4,100 units, with a total manufacturing overhead of P9,000.

Requirements:

1. What is the applied manufacturing overhead?

Actual Activity Level 4,100 units
 Predetermined Overhead Application Rate
(Variable + Fixed)
2.10 per unit + P1,440/(48,000 annual/12 months) 2.46
Applied Manufacturing Overhead P 10,086

2. What is over or underapplied manufacturing overhead for March?

Applied Manufacturing Overhead
Actual Activity Level * Predetermined Overhead Rate
(4,100 units * P 2.46 per unit) P 10,086
Actual Manufacturing Overhead 9,000
Overapplied MOH (Applied>Actual) P 1,086

Problem 4:
The Val Company has two service departments and two producing departments. The following
are the overhead costs of each department:

Service Department:
Factory Administration P 129,000
Building and Grounds 105,000
Producing Department:
Machinery 416,000
Assembly 380,000

Additional Information:

Department Estimated Total Square Footage

Labor Hours
Factory Administration 2,900 1,200
Building and Grounds 1,100 1,500
Machinery 2,000 1,900
Assembly 1,600 3,200

The costs of factory administration are allocated based on estimated labor hours; building and
grounds costs are allocated based on square footage. The producing department uses machine
hours, with 30,000 for machinery and 22,800 for assembly.

Requirements:

Determine the total overhead cost of each producing departments after allocating the cost of
service departments using the following methods:

1. Direct Method:
2. Step Method (allocate the costs of factory administration first)
 3. Reciprocal Method (simultaneous equation)

Problem 5:
Jose Santos worked 47 hours in one week at a rate of P45 an hour. He is paid one and a half
times the regular rate for hours worked in excess of 40.

Requirement: What is the gross earnings of Jose Santos:

Problem 6:
Mike G, a production employee is paid P 180 per hour for a regular work of 40 hours. During the
week ended March 23, Mike G worked 55 hours and earned time and a half for overtime hours.

Requirement: What is the amount that should be charged to Work in Process account if the
overtime premium is charged to production worked on during the overtime hours?

Problem 7:
Mike G, a production employee is paid P 180 per hour for a regular work of 40 hours. During the
week ended March 23, Mike G worked 55 hours and earned time and a half for overtime hours.

Requirement: What is the amount that should be charged to Work in Process account, if the
overtime premium is charged to manufacturing overhead?

Problem 8:
Four factory workers and a supervisor make a team in the Machining Department. The
supervisor earns P 100 per hour, and the combined hourly charge of the four workers is P320.
Each employee is entitled to a 2-week paid vacation and a bonus equal to 4 week's wages each
year. Vacation pay and bonuses are treated as indirect costs and are accrued over the 50 week
work year. A provision in the union contract does not allow these employees to work in excess
of 40 hours per week.

Requirement: What is the amount to be charged to Manufacturing Overhead Control account?

Problem 9:
Ms. Jacky, a production worker earns P14,904 a month, and the company pays one month's
salary as bonus at the end of the year. Ms. Jacky is also entitled to a half month paid vacation.
The company also pays P2,070 a year into a pension fund of the worker. All labor related fringe
benefits of production workers are treated as manufacturing overhead. Bonus, vacation pay, and
pension costs are charged to production during the 11 and 1/2 months the employee is at work.

Requirement: What is the total liability for bonus, vacation and pension?

Problem 10:
Ms. Joy, a punch press operator in a metal fabricating plant is randomly assigned to various
jobs. The straight-time wage rate is P40 per hour with time and one-half for time over 40 hours
per week.

Requirement: How much of these earnings should be charged to Manufacturing Overhead

Control account if 48 hours are worked in one week?

Problem 11:
Ms. Joy, a punch press operator in a metal fabricating plant is randomly assigned to various
jobs. The straight-time wage rate is P40 per hour with time and one-half for time over 40 hours
per week.

Requirement: How much of these earnings should be charged to Work in Progress (pertaining
to Direct Labor) account if 48 hours are worked in one week?