✩₊°.

⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

CHAPTER 7 - ACCOUNTING FOR LABOR

Problem 1
The Evergreen Company produces tools on a job-order basis. During May, two jobs were
completed, and the following costs were incurred:
Job 401 Job 402
Direct materials P28,000 P37,000
Direct labor - regular P18,000 P23,000
overtime premium P6,000

Other factory costs for the month totaled P 16,800. Factory overhead costs are allocated
one-third to Job 401 and two-thirds to Job 402.

Required:
a) Describe two alternative methods of recording the overtime premium and explain how the
appropriate method affect the cost of each job.
b) Compute the cost of Job 401 and Job 402 under each of the two methods.

SOLUTION:
Work in Process Factory Overhead Cost
Job 401 Job 402 Job 401 Job 402
DM 28,000 37,000 28,000 37,000
DL - regular 18,000 23,000 18,000 23,000
overtime 6,000
OH - P16,800 5,600 11,200 7,600 15,200
16,800 x 1/3 16,800 x 2/3 (16,800 + 6,000) x 1/3 (16,800 + 6,000) x 2/3

Total P51,600 P77,200 P53,000 P75,200

 ✩₊°.⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

Problem 2
A weekly payroll summary made from time tickets shows the following data:
Employee Status Classification Rate/Hour Regular Overtime
Austria, B. S Direct 36 40 2
Bautista, D. ME Direct 36 40 3
De Santos, M. ME - 2 Direct 45 40 4
Motus, R. HF - 4 Indirect 30 40
Reyes, A. HF Indirect 30 40
Overtime is payable at one-and-a-half times the regular rate of pay for an employee.

Required:
a) Determine the net pay for each employee.
b) Prepare journal entries for:
1. recording the payroll. 3. distribution of the payroll.
2. payment of the payroll. 4. the employer's payroll taxes.

SOLUTION:
Austria Bautista De Santos Motus Reyes
rate per hour 36 36 45 30 30
regular hours
160 160 160 160 160
(reg hrs x 4 weeks)
overtime
8 12 16
(ot hrs x 4 weeks)
premium
18 18 22.5 15 15
(rate / 2)
overtime pay
144 216 360
(ot x premium)
regular pay
5,760 5,760 7,200 4,800 4,800
(rate x reg hr)

A B D M R
5,760 5,760 7,200 4,800 4,800

EE 4.5% 259.2 259.2 324 216 216 (rate x reg pay)

SSS
ER 9.5% 547.2 547.2 684 456 456
EE 2.5% 144 144 180 120 120
PhilHealth
ER 2.5% 144 144 180 120 120
EE 2% 115.2 115.2 144 96 96
Pag-ibig
ER 2% 115.2 115.2 144 96 96
 ✩₊°.⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

1. recording the payroll.

Payroll
(regular pay + 5,904 5,976 7,560 4,800 4,800 = 29,040
overtime pay)
SSS 259.2 259.2 324 216 216 (1,274.4)
PhilHealth 144 144 180 120 120 (708)
Pag-ibig 115.2 115.2 144 96 96 (566.4)
Voucher Payable 26, 491.2

JOURNAL ENTRY:
Payroll 29,040
SSS 1,274.4
PhilHealth 708
Pag-ibig 566.4
Withholding Tax 0
Voucher Payable 26,491.2
#

2. payment of the payroll.

JOURNAL ENTRY:
Voucher Payable 26,491.2
Cash 26,491.2
#

3. distribution of the payroll.

JOURNAL ENTRY:
Work in Process xxx
Factory Overhead xxx
Payroll xxx
#

4. the employer's payroll taxes.

JOURNAL ENTRY:
Factory Overhead Costs xxx
SSS xxx
PhilHealth xxx
Pag-ibig xxx
#
 ✩₊°.⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

CHAPTER 8 - ACCOUNTING FOR FACTORY OVERHEAD

Problem 1
a. Material cost
𝑒𝑠𝑡. 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,000,000
= 𝑒𝑠𝑡. 𝑑𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡. 𝑐𝑜𝑠𝑡
× 100 = 800,000
× 100 = 125%

b. Units of production
𝑒𝑠𝑡. 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,000,000
= 𝑒𝑠𝑡. 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
= 20,000
= 50/unit

c. Machine hours
𝑒𝑠𝑡. 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,000,000
= 𝑒𝑠𝑡. 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑟𝑠
= 160,000
= 6.25/MHrs

d. Direct labor cost

𝑒𝑠𝑡. 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,000,000
= 𝑒𝑠𝑡. 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡
× 100 = 500,000
× 100 = 2%

e. Direct labor hours

𝑒𝑠𝑡. 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,000,000
= 𝑒𝑠𝑡. 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 ℎ𝑟𝑠
= 50,000
= 20/DLHrs

Problem 2
1. Compute for the overhead application rate
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂𝐻 𝑐𝑜𝑠𝑡 510,000
= 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐷𝐿 ℎ𝑟𝑠
= 200,000
= 2.55

2. Compute for the applied factory overhead

= 𝐴𝑐𝑡𝑢𝑎𝑙 𝐷𝐿 ℎ𝑟𝑠 × 𝑂𝐻 𝑟𝑎𝑡𝑒 = 210, 000 × 2. 55 = 535,500

3. Compute for the over or under-applied overhead

= 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝐻 − 𝐴𝑝𝑝𝑙𝑖𝑒𝑑 𝑂𝐻 = 540, 000 − 535, 500 = 4,500 (underapplied)

Problem 3
A. Journal Entries
1. WIP 473,200 (84,500 x 5.60)
FOH - applied 473,200

2. FOH - control 470,800

Various Accounts 470,800

3. FOH - applied 473,200

COGS 2,400
FOH - control 470,800

Solution for OH rate:

a. actual = 470,800 / 84,500 = 5.57
b. applied = 456,120 / 81,450 = 5.60
 ✩₊°.⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

B. Allocation of OH variance
350,000
1. Cost of Goods Sold = 473,200 × 2, 400 = 1,775
100,000
2. Finished Goods = 473,200 × 2, 400 = 507
23,200
3. Work in Process = 473,200 × 2, 400 = 118
4. Journal Entry:
FOH - applied 473,200
COGS 1,775
Finished Goods 507
Work in Process 118
FOH - control 470,800

Problem 4
1. Job 123 Job 124 Job 125 Job 126
Direct labor 750 1,175 1,750 6,400
FOH rate 80% 80% 80% 80%
Applied FOH 600 940 1,400 5,120

2. Job 123 Job 124 Job 125 Job 126

Material cost 375 1,350 900 5,250
Direct labor 750 1,175 1,750 6,400
Applied FOH 600 940 1,400 5,120
Total 1,725 3,465 4,050 16,770

Problem 5
A. Allocation of service cost to operating departments
1. Direct Method P1 P2 S1 S2
Direct cost 112,500 75,000 25,000 40,000
Allocated FO:
S1 12,500 12,500
(25,000)
10:10 (25k x 10 / 20) (25k x 10 / 20)

S2 25,000 15,000
(40,000)
50:30 (40k x 50 / 80) (40k x 30 / 80)

Total FO 150,000 102,500 0 0

Base 62,500 MHrs 25,000 DLHrs
FO rate 2.4/MHrs 4.1/DLHrs
 ✩₊°.⋆ COST ACCOUNTING AND CONTROL NOTES ⋆⁺₊✧

2. Step Method P1 P2 S1 S2
Direct cost 112,500 75,000 25,000 40,000
Allocated FO:
S1 2,500 2,500 20,000
(25,000)
10:10:80 (25k x 10 / 100) (25k x 10 / 100) (25k x 80 / 100)

60,000
S2 37,500 22,500
(60,000)
50:30 (60k x 50 / 80) (60k x 30 / 80)

Total FO 152,500 100,000 0 0

Base 62,500 MHrs 25,000 DLHrs
FO rate 2.44/MHrs 4/DLHrs

3. Algebraic Method P1 P2 S1 S2
Direct cost 112,500 75,000 25,000 40,000
Allocated FO:
S1 3,928.6 3,928.6 31,428.8
(39,286)
10:10:80 (39,286 x 10 / 100) (39,286 x 10 / 100) (39,286 x 80 / 100)

71,429
S2
44,643 26,786 (71,429)
50:30
Total FO 161,072 105,715 0 0
Base 62,500 MHrs 25,000 DLHrs
FO rate 2.58/MHrs 4.23/DLHrs

Solution for S1: Solution for S2:

S1 = 25,000 + 20% (40,000 + 80% S1) S2 = 40,000 + 80% (25,000 + 20% S2)
S1 = 25,000 + 8,000 + 0.16 S1 S2 = 40,000 + 20,000 + 0.16 S2
S1 – 0.16 S1 = 33,000 S2 – 0.16 S2 = 60,000
S1 = 33,000 / 0.84 S2 = 60,000 / 0.84
S1 = 39,285.71 S2 = 71,429

B. Overhead rate
P1 P2
Direct labor hours 50,000 25,000
1. Direct Method 3/DLHrs 4.1/DLHrs
2. Step Method 3.05/DLHrs 4/DLHrs
3. Algebraic Method 3.22/DLHrs 4.23/DLHrs