1

CHAPTER 7
Multiple Choice Questions Theoretical
1.
2.
3.
4.

c
b
b
b

5.
6.
7.
8.

b
c
a
d

9.
10.
11
12.

a
c
a
C

Multiple Choice Questions Computational

1.

(c)
30,000 / 40,000 x P100,000 = P75,000

2.

(a)
40% x P20,000 = P10,000

3.

(b)
Computer time: (P4,500 x 70%) = P3,150
Computer program: (P4,500 - P3,150) + P2,500 = P3,850

4.

(a)

5.

(d)
Service department costs:
S1

=
=
=
.98S1 =
S1 =

P27,000 + .20 S2
P27,000 + .20 (P18,000 + .10 S1)
P27,000 + P3,600 + .02 S1
P30,600
P31,224

S2

P18,000 + .10 (P31,224)

P18,000 + P3,122
P21,122

=
=
=

Total service cost allocated to P2: (40% x P31,224) + (50% x P21,122) = P23,051
6.

(d)
30% / 90% x P9,000 = P4,500

7.

(b)
Under the step method, the maintenance department would allocate its P18,700 of
cost first, because it has the greatest total cost. Note that both the maintenance and
utilities department provides service to the other service department. Thus, the
criterion for first allocation is greatest cost, not greatest number of service
department.

2
8.

(c)
As determined in No. 7, the Maintenance Department budget is allocated first under
the step method. Thus, P3,740 (20% of P18,700) is allocated to the Utilities
Department. Now the Utilities Department has P12,740 (P9,000 + P3,740) to
allocate between Departments A and B.

9.

(b)
Under the reciprocal method, simultaneous equations are developed to determine the
gross costs of each service department, taking into account the interactive effect of
other service departments providing inter service department service. For Utilities,
the cost is P9,000 plus 20% of the Maintenance cost, 30% of its will be applied to
Department A and 60% to B. The 10% that have already been assigned to the
Maintenance Department is reflected in the set of simultaneous equations.

10.

(d)
M
E
M
E
E
E
.95E
E

11.

=
=
=
=
=
=
=
=

Maintenance Departments total cost

Engineering Departments total cost
P12,000 + .20E
P54,000 + .25M
P54,000 + .25 (P12,000 + .20 E)
P54,000 + P3,000 + .05E
P57,000
P60,000

(a)
Out of the total Engineering Departments cost of P60,000, P48,000 is allocated to
producing departments on the basis of total hours as follows:
Dept. A: (800 / 2,000) x P60,000 = P24,000
Dept. B: (400 / 2,000) x P60,000 = 12,000
Dept. C: (400 / 2,000) x P60,000 = 12,000
Total
P48,000

12.

(a)
M
E
M
M
.95M
M

=
=
=
=
=
=

P12,000
P54,000
P12,000
P12,000
P22,800
P24,000

+
+
+
+

.20E
.25M
.20 (P54,000 + .25M)
P10,800 = .05M

=
=
=
=

P60,00
P12,000 + .20E
P12,000 + P12,000
P24,000

Or:
E
M
M
M

13.

(a)

14.

(d)
Under the direct method, no service department costs are allocated to another service
department. Thus, there would be no maintenance cost allocated to the Engineering
Department.

15.

(c)
200 / 1,200 x P12,000 = P2,000

16.

(b)
800 / 1,600 x P54,000 = P27,000

17.

(c)
400 / 1,600 x P12,000 = P3,000

18.

(c)
200 / 1,600 x P12,000 = P1,500

19.

(d)
Under the step method, once departments cost have been allocated to subsequent
departments, no reallocation back to Maintenance Department is to be made. Thus,
no Engineering costs is reallocated to the Maintenance Department.

20.

(b)
400 / 1,600 x (P54,000 + P3,000) = P14,250

21.

(d)
Maintenance costs: (800 / 1,600) x P12,000
=
Engineering costs: (800 / 1,600) x (P54,000 + P3,000) =
Total allocated to Department A

22.

P 6,000
28,500
P34,500

(d)
Total Factory Maintenance Cost
Total Square Footage

x Fabrication Square footage occupied

P82,100 + P65,000 + P56,100

88,000 + 72,000

x 88,000

= P111,760

4
23.

(a)
General Factory Adm. Dept. Cost

DLH of Assembly

Total Direct Labor Hours

P90,000 + P70,000

437,500 = P70,000

562,500 + 437,500
24.

(b)
Total Factory Cafeteria Cost
Total employee
P87,000 + P91,000 + P62,000
280 + 200 + 12 + 8

25.

x No. of employee of
Factory Maintenance
x 8

= P3,840

(b)
Factory Cafeteria cost
Factory Maintenance cost

P240,000
P203,300

Factory Cafeteria cost already closed out.

26.

(b)
Pesos of Assets
Employed
P 762,400
1,870,300
P2,632,700

Advertising
Circulation

No. of
Employees
12
25
37

%
29
71

Advertising
Administration:
P781,500 x .29
P781,500 x .71
Human Resources:
P492,700 x .32
P492,700 x .68
Total
Advertising:
Circulation:
27.

%
32
68

Circulaton

P226,635
P554,865
157,664
P384,299

P 957,800 + P384,299 =
P1,352,600 + P889,901 =

335,036
P889,901

P1,342,099
2,242,501
P3,584,600

(a)
Administration (P781,500):
Human Resources
Advertising
Circulation

Base
P 291,700
762,400
1,870,300
P2,924,400

%
10
26
64

Allocation
P781,500
203,190
500,160
P781,500

5
Question 27, (continued)
Human Resources (P492,700 + P78,150 = P570,850):
Base
%
Advertising
12
32
Circulation
25
68
37
Advertising:
Circulation:
28,

P 957,800 + P203,190 + P182,672

P1,352,600 + P500,160 + P388,178

=
=

Allocation
P182,672
388,178
P570,850
P1,343,662
2,240,938
P3,584,600

(a)

Administration (A)
Human Resources (H)
Advertising
Circulation

Administration
Base
%
n/a
n/a
P 291,700
10
762,400
26
1,870,300
64
P2,924,400

Equation:
A
=
H
=

P781,500 + .21 H
P492,700 + .10 A

A
A
.979A
A

=
=
=
=

P781,500 + .21 (P492,700 + .10 A)

P781,500 + P103,467 + .021 A
P884,967
P903,950

H
H
H

=
=
=

P492,700 + .10 (P903,950)

P492,700 + P90,395
P583,095

H. Resources
Base %
10
21
n/a
n/a
12
26
25
53
47

Administration allocations:
Human resources:
P903,950 x .10 = P 90,305
Advertising:
P903,950 x .26 = P235,027
Circulation:
P903,950 x .64 = P578,528
Human Resource allocations:
Administration:
P583,095 x .21 = P122,450
Advertising:
P583,095 x .26 = P151,605
Circulation:
P583,095 x .53 = P309,040
Direct costs
Administration
H. Resources

Administration
P781,500
(903,950)
122,450
P
0

H. Resource
P492,700
90,395
(583,095)
P
0

Advertising
P 957,800
235,027
151,605
P1,344,432

Circulation
P1,352,600
578,528
309,040
P2,240,168

6
29.

(b)
Department
Administration (A)
Editorial (E)
College Texts
Prof. Pubs.
Total

Administration
Base
%
n/a
n/a
P 144,000
6
1,200,000
50
1,056,000
44
P2,400,000
100

Equation:
A
=
E
=

P450,000 + 0.10E
P350,000 + 0.06A

A
=
A
=
0.994A =
A
=

P450,000 + 0.10 (P350,000 + 0.06A)

P450,000 + P35,000 + 0.006A
P485,000
P487,928

E
E
E

P350,000 + 0.06 (P487,928)

P350,000 + P29,276
P379,276

=
=
=

Editorial
Base
%
10
10
n/a
n/a
55
55
35
35
100
100

Administration Costs:
Editorial:
P487,928 x 0.06 = P 29,276
College texts: P487,928 x 0.50 = 243,964
Prof. pubs.:
P487,928 x 0.44 = 214,688
Editorial Costs:
Administration: P379,276 x 0.10 = P 37,928
College texts: P379,276 x 0.55 = P208,602
Prof. Pubs.:
P379,276 x 0.35 = P132,746
Department
Direct costs
Administration
Editorial
Total
30.

(a)

Administration
P450,000
(487,928)
37,928
P
0

See above computations

Editorial
P350,000
29,276
(379,276)
P
0

College
Texts
P2,250,000
243,964
208,602
P2,702,566

Prof. Pubs.
P 950,000
214,688
132,746
P1,297,434

7
Solutions to Problems
Problem 7-1
(a)
Machinery
Assembly

DL Hours
2,000
1,600
3,600

%
55.56
44.44
100.00

Square Footage
1,900
3,200
5,100

%
37.25
62.75
100.00

Allocation:
Machinery
Factory Administration:
P129,000 x 55.56%
P129,000 x 44.44%
Building and grounds:
P105,000 x 37.25%
P105,000 x 62.75%
Total

Assembly

P7 1,672
P 57,328
39,113
P110,785

Total costs after allocation:

Machinery:
P416,000 + P110,785
Assembly:
P380,000 + P123,216

=
=

65,888
P123,216

P526,785
P503,216

Factory overhead rates (based on machine hours):

Machinery:
P526,785 / 30,000
=
P17.56 per hour.
Assembly:
P503,216 / 22,800
=
P22.07 per hour
(b)

Factory Administration (P129,000):

Building and Grounds
Machinery
Assembly
Total

Base
1,100
2,000
1,600
4,700

%
23.41
42.55
34.04
100.00

Allocation
P 30,199
54,890
43,911
P129,000

Building and grounds (P105,000 + P30,199 = P135,199):

Machinery
Assembly
Total

Base
1,900
3,200
5,100

%
37.25
62.75
100.00

Total costs after allocation:

Machinery:
P416,000 + P54,890 + P50,362 =
Assembly:
P380,000 + P43.911 + P84,837 =

Allocation
P 50,362
84,837
P135,199
P521,252
P508,748

Factory overhead rates (based on machine hours):

Machinery:
P521,252 / 30,000
=
P17.38 per hour
Assembly:
P508,748 / 22,800
=
P22.31 per hour

8
Problem 7-1 (continued)
(c)
Factory adm. (F)
Building grounds (B)
Machinery
Assembly

Factory
Adm.
n/a
1,100
2,000
1,600

Building and
Grounds
1,200
n/a
1,900
3,200

%
n/a
.23
.43
.34

Equation:
F
=
B
=

P129,000 + .19B
P105,000 + .23F

F
F
.9563F
F

=
=
=
=

P129,000 + .19 (P105,000 + .23F)

P129,000 + P19,950 + .0437F
P148,950
P155,757

B
B
B

=
=
=

P105,000 + .23(P155,757)
P105,000 + P35,824
P140,824

Cost Allocations:
Factory Administration allocations:
Building and grounds: P155,757 x .23 =
Machinery:
P155,757 x .43 =
Assembly:
P155,757 x .34 =

P35,824
P66,976
P52,957

Building and Grounds allocations:

Factory administration: P140,824 x .19 =
Machinery:
P140,824 x .30 =
Assembly:
P140,824 x .51 =

P26,757
P42,247
P71,820

%
.19
n/a
.30
.51

Total cost after allocations:

Direct cost
F. Administration
Bldg. and Grounds
Total
F/O rates

F. Admin.
P129,000
(155,757)
26,757
P
0

Building &
Grounds
P105,000
35,824
(140,824)
P
0

Machinery
P416,000
66,976
42,247
P525,223
P17.51

Assembly
P380,000
52,957
71,820
P504,777
P22.14

Problem 7-2
(a)

Machinery
Maintenance:
P250,000
P250,000
P250,000
Storeroom:
P180,000
P180,000
P180,000
Total

x .32/.86
x .26/.86
x .28/.86
x .26
x .44
x .30

Assembly

Packaging

P 93,023
P 75,581
P 81,395
46,800
79,200
P139,823

P154,781

54.000
P135,395

9
Problem 7-2 (continued):

(b)

Direct Cost
Service dept. allocated cost
Total cost after allocation

Machinery
P 600,000
139,823
P 739,823

Assembly
P 892,000
154,781
P1,046,781

Packaging
P 436,000
135,395
P 571,395

Factory overhead rates

P36.99

P29.08

P31.74

Maintenance (P250,000):
Storeroom:
Machinery:
Assembly:
Packaging:

P250,000
P250,000
P250,000
P250,000

x
x
x
x

.14
.32
.26
.28

=
=
=
=

P35,000
80,000
65,000
70,000

Storeroom (P180,000 + P35,000 = P215,000)

Machinery:
Assembly:
Packaging:

P215,000 x .26
P215,000 x .44
P215,000 x .30

=
=
=

P55,900
94,600
64,500

Direct cost
Maintenance cost
Storeroom cost
Total cost

Machinery
P 600,000
80,000
55,900
P 735,900

Assembly
P 892,000
65,000
94,600
P1,051,600

Packaging
P 436,000
70,000
64,500
P 570,500

Factory overhead rates

P36.80

P29.21

P31.69

(c)
Maintenance (M)
Storeroom (S)
Machinery
Assembly
Packaging

Maintenance
Base %
n/a
.14
.32
.26
.28

Storeroom
Base
%
400
0.03
n/a
n/a
3,500
0.25
6,000
0.43
4,100
0.29
14,000

Equation:
M
=
S
=

P250,000 + .03S
P180,000 + .14M

M
=
M
=
.9958M =
M
=

P250,000 + .03 (P180,000 + .14M)

P250,000 + 5,400 + .0042M
P255,400
P256,477

S
S
S
S

P180,000 + .14M
P180,000 + .14 (P256,477)
P180,000 + P35,907
P215,907

=
=
=
=

10
Problem 7-2 (continued)
Maintenance allocations:
Storeroom:
P256,477
Machinery:
P256,477
Assembly:
P256,477
Packaging:
P256,477

x
x
x
x

.14
.32
.26
.28

=
=
=
=

P
P
P
P

Storeroom allocations:
Maintenance: P215,907
Machinery:
P215,907
Assembly:
P215,907
Packaging:
P215,907

x
x
x
x

.03
.25
.43
.29

=
=
=
=

P 6,477
P 53,977
P 92,840
P 62,613

Storeroom
P 180,000
35,907
(215,907)
P
0

Machinery
P 600,000
82,073
53,977
P 736.050

Assembly
P 892,000
66,684
92,840
P1,051,524

Packaging
P 436,000
71,813
62,613
P 570,426

P36.80

P29.21

P31.69

35,907
82,073
66,684
71,813

Total cost after allocations:

Direct cost
Maintenance
Storeroom
Total cost

Maintenance
P 250,000
(256,477)
6,477
P
0

F/O Rates

Problem 7-3
1.

Producing Departments
A
B
P820,000
P608,000

Budgeted manufacturing overhead

Service Department X to:
A (180/600 x P200,000)
B (420/600 x P200,000)
Service Department Y to:
A (128/160 x P100,000)
B ( 32/160 x P100,000)
Total

60,000
140,000
80,000
P960,000

Predetermined manufacturing overhead rates:

Department A: P960,000 / 128,000 machine hours =
Department B: P768,000 / 200,000 DL hours
=
Overhead cost of Job 155:
Dept. A: 60 x P7.50
=
Dept. B: 40 x P3.84
=
Total cost
2.

P7.50 per machine hour

P3,84 per DLH

P450
154
P604

Total budgeted factory overhead

Divided by total direct labor hours
Plant-wide overhead rate
Cost of Job 155: 60 x P6.40

20,000
P768,000

P1,728,000
270,000
P
6.40
P384

11

Problem 7-4
Assembly
P1,040,000

Finishing
P 800,000

280,000
180,000
P1,500,000
50,000
P 30/hour

120,000
120,000
P1,040,000
40,000
P 26/hour

Base
20
360
420
800

%
.025
.45
.525

Allocation
P 500
9,000
10,500
P20,000

Base
8,000
6,000
14,000

%
.57
.43

Allocation
P40,000*
30,000*
P70,000

P1
P400,000
9,000
40,000
P449,000
8,000
P 56.125

P2
P600,000
10,500
30,000
P640,500
20,000
P 32.025

Factory overhead budget

Allocation of Service Departments cost:
Maintenance: P400,000, 42:18
Administration: P300,000, 30:20
Total budgeted factory overhead
Divided by machine hours
Factory overhead rates

Problem 7-5
1.

S1 (P20,000):
S2
P1
P2
S2 (P69,500 + P500 = P70,000):
P1
P2
*rounded
Budgeted factory overhead
S1 cost
S2 cost
Total cost
Divided by
Predetermined overhead rates

2.
3.

P1,089,000 / 30,000 DLH

P36.317 per DLH

Individual jobs may have relatively different amounts of time in each department.
For example, if P1 is machine intensive and P2 is labor intensive, the departmental
overhead rates would provide a fairer allocation of costs to jobs.

12

Problem 7-6
1.

2.

Equation 1:
Equation 2:
Equation 3:

C =
D =
E =

P40,000 + .20D
P40,000 + .20C
P20,000 + .30C + .10D

Substitution:
C
=
C
=
.96C =
C
=

P40,000 + .20 (P40,000 + .20C)

P40,000 + P8,000 + .04C
P48,000
P50,000

D
D
D

=
=
=

P40,000 + .20 (P50,000)

P40,000 + P10,000
P50,000

E
E
E

=
=
=

P20,000 + .30 (P50,000) + .10 (P50,000)

P20,000 + P15,000 + 5,000
P40,000

Service C allocation:
Service D:
P50,000 x .20 =
Service E:
P50,000 x .30 =
Producing B: P50,000 x .50 =

P10,000
P15,000
P25,000

Service D allocation:
Service C:
P50,000
Service E:
P50,000
Producing A: P50,000
Producing B: P50,000

x
x
x
x

.20
.10
.30
.40

=
=
=
=

P10,000
P 5,000
P15,000
P20,000

Service E allocation:
Producing A: P40,000
Producing B: P40,000
Marketing:
P40,000
General office: P40,000

x
x
x
x

.40
.30
.20
.10

=
=
=
=

P16,000
P12,000
P 8,000
P 4,000

Producing A: P120,000 + P15,000 + P16,000

= P151,000
Producing B: P180,000 + P25,000 + P20,000 + P12,000 = 237,000
Marketing
=
8,000
General Office
=
4,000
Total
P400,000

13

Problem 7-7
1.

Producing Department
P1
P2
P 40,000
P47,600

Factory overhead
Allocation of Service Department:
S1: P14,400; ( 40% : 50%)
S2: P18,000 ; ( 20% : 40%)
Total
2.

S2 allocation (P18,000):
P1:
P18,000 x 20%
P2:
P18,000 x 40%
S1:
P18,000 x 40%

=
=
=

6,400
6,000
P120,000
P 3,600
7,200
7,200
P18,000

S1 allocation (P14,400 + P7,200 = P21,600):

P1:
P21,600 x .40/.90
=
P 9,600
P2:
P21,600 x .50/.90
=
12,000
P21,600
Total manufacturing overhead after allocation:
P1:
P40,000 + P3,600 + P 9,600 =
P 53,200
P2:
P47,600 + P7,200 + P12,000 =
66,800
Total
P120,000
3.

S1
S2

=
=

P14,400 + .40 S2
P18,000 + .10 S1

Substitution:
S1
=
S1
=
.96S1 =
S1
=

P14,400 + .40 (P18,000 + .10 S1)

P14,400 + P7,200 + .04 S1
P21,600
P22,500

S2
S2
S2

P18,000 + .10 (P22,500)

P18,000 + P2,250
P20,250

=
=
=

S1 allocations:
S2:
P22,500 x .10 =
P1:
P22,500 x .40 =
P2:
P22,500 x .50 =

P2,250
P9,000
P11,250

S2 allocations:
S1:
P20,250 x .40 =
P1:
P20,250 x .20 =
P2:
P20,250 x .40 =

P8,100
P4,050
P8,100

Total manufacturing overhead after allocation:

P1:
P40,000 + P 9,000 + P4,050 =
P 53,050
P2:
P47,600 + P11,250 + P8,100 =
66,950

8,000
12,000
P52,400

14
Total

P120,000

Problem 7-8
a.

Administration Costs (P750,000):

Base
5/146
6/146
21/146
101/146
13/146

Accounting
Promotion
Commercial
Residential
Prop. Mgmt.
Total (rounded)

Allocation
P 25,685
30,822
107,877
518,835
66,781
P750,000

Accounting Costs (P495,000 + P25,685 = P520,685)

Base
Promotion
P360,000 / P1,760,000
Commercial
P500,000 / P1,760,000
Residential
P725,000 / P1,760,000
Prop. Mgmt.
P175,000 / P1,760,000
Total (rounded)

Allocation
P106,504
147,922
214,487
51,772
P520,685

Promotion (P360,000 + P30,822 + P106,504 = P497,326)

Base
Commercial
P4,500,000 / P14,500,000
Residential
P9,500,000 / P14,500,000
Prop. Mgmt.
P 500,000 / P14,500,000
Total

Allocation
P154,343
325,834
17,149
P497,326

Summary of
Commercial:
Residential:
Prop. Mgmt:

allocation:
P107,877 + P147,922 + P154,343 =
P518,835 + P214,487 + P325,834 =
P 66,781 + P 51,772 + P 17,149 =

b.
Revenues
Direct costs
Allocated costs
Income (loss)

Commercial
P 4,500,000
(5,245,000)
(410,142)
P(1,155,142)

P 410,142
P1,0549,156
P 135.702

Residential
P 9,500,000
(4,589,510)
(1,059,156)
P 3,851,334

Prop. Mgmt.
P 500,000
(199,200)
(135,702)
P 165,098

The Residential Department is the most profitable with a return on revenues of

40.5% (P3,851,334 / P9,500,000)

15

Problem 7-9
a.

Total EDP hours used

Transfer price revenue

=
=

1,220 + 650 + 190 = P2,060

2,060 x P40 = P82,400

Actual Variable EDP Costs

Total EDP Hours Used

P90,640 =
2,060

P44 transfer price

The P40 transfer price is inadequate because the EDP Department is left with a loss
(for internal evaluation purposes) of (P90,640 P82,400) or P8,240.
b.

Allocate administration costs of P450,000 and fixed EDP costs of P300,000.

Administration (P450,000), 10:5:3

EDP-Fixed (P300,000), 80:345:240:25
Total allocated
Transfer costs
Direct costs

Lit
P250,000
69,565
P319,565
48,800
200,000

FP
P125,000
208,696
P333,696
26,000
255,000

LC
P 75,000
21,739
P 96,739
7,600
340,000

Total
P 450,000
300,000
P 750,000
82,400
795,000

Total

P568,365

P614,696

P444,339

P1,627,400

Cost
P1,065,000
P1,065,000
P1,065,000
P1,065,000

Allocation
= P 53,250
=
79,875
=
532,500
=
399,375
P1,065,000

Problem 7-10
a.

SD1 Costs (P1,065,000):

Base
SD2
20/400
SD3
30/400
PD1
200/400
PD2
150/400

%
0.050
0.075
0.500
0.375

x
x
x
x

SD2 Costs (P840,000 + P53,250 = P893,250):

Base
%
Cost
SD3
200/2,000
0.10
x
P893,250 =
PD1
800/2,000
0.40
x
P893,250 =
PD2
1,000/2,000
0.50
x
P893,250 =

Allocation
P 89,325
357,300
446,625
P 893,250

SD3 Costs (P1,185,000 + P79,875 + P89,325 = P1,354,200):

Base
%
Cost
Allocation
PD1
68/170
0.40
x
P1,354,200 = P 541,280
PD2
102/170
0.60
x
P1,354,200 =
812,520
P1,354,200
Summary of allocations:
PD1: P3,760,000 + P532,500 + 357,300 + 541,680 = P5,191,480
PD2: P3,600,000 + P399,375 + 446,625 + P812,520 = P5,258,520
Factory overhead rates:
PD1: P5,191,480 / 400,000 = P12.98 or P13.00 per DLH
PD2: P5,258,520 / 300,000 = P17.53 or P17.50 per DLH

16

Problem 7-10 (continued):

b.
# of
Employees %
PD1
200
0.57
PD2
150
0.43
350

SD1:
SD2:
SD3:

Floor
Space %
800 0.44
1,000 0.56
1,800

# of
Hours %
68
0.40
102
0.60
170

PD1
P 607,050

P1,065,000 x 0.57
P1,065,000 x 0.43
P840,000 x 0.44
P840,000 x 9.56
P1,185,000 x 0.40
P1,185,000 x 0.60

PD2
P 457,950

369,600
470,400
474,000

Total

P1,450,650

711,000
P1,639,350

Factory overhead rates:

PD1: (P3,760,000 + P1,450,650) 400,000 = P5,210,650 400,000 = P13 per DLH
PD2: (P3,600,000 + P1,639,350) 300,000 = P5,239,350 300,000 = P18 per DLH
c.
Department
SD1
SD2
SD3
PD1
PD2

SD1
Base
%
n/a
n/a
20
0.050
30
0.075
200
0.500
150
0.375
400

SD2
Base
%
400 0.167
n/a n/a
200 0.083
800 0.333
1,000 0.417
2,400

SD3
Base
%
15
0.073
20
0.098
n/a
n/a
68
0.332
102
0.497
205

Equations:
SD1
=
SD2
=
SD3
=

P1,065,000 + .167 SD2 + 0.73 SD3

P 840,000 + .05 SD1 + 0.98 SD3
P1,185,000 + .075 SD1 + 0.83 SD2

SD1
=
SD1
=
.992SD1 =
SD1
=

P1,065,000
P1,065,000
P1,205,280
P1,215,000

+
+
+
+

.167 (P840,000 + .05SD1 + .098 SD3) + .073SD3

P140,280 + .008SD1 + .016SD3 + .073SD3
.89SD3
.09SD3

SD3
=
SD3
=
.992SD3 =
SD3
=

P1,185,000
P1,185,000
P1,254,720
P1,264,839

+
+
+
+

.075SD1 + .83 (P840,000 + .05SD1 + .098SD3)

.075SD1 + P69,720 + .004SD1 + .008SD3
.079SD1
.08SD1

Substituting SD3
SD1
=
P1,215,000 + .09 (P1,264,839 + .08SD1)
SD1
=
P1,215,000 + P113,835 + .007SD1
.993SD1 =
P1,328,835
SD1
=
P1,228,202

17

Problem 7-10 (continued)

Substituting SD1
SD3
=
P1,264,839 + .08 (P1,338,202)
SD3
=
P1,264,839 + P107,056
SD3
=
P1,371,896
Substituting SD1 and SD3
SD2
=
P840,000 + .05 (P1,338,202) + .098 (P1,371,896)
SD2
=
P840,000 + P66,910 + P134,446
SD2
=
P1,041,356
Allocations:
SD1 allocations:
SD2: P1,338,202
SD3: P1,338,202
PD1: P1,338,202
PD2: P1,338,202

x
x
x
x

0.050
0.075
0.500
0.375

=
+
=
=

P66,910
P100,365
P669,101
P501,826

SD2 allocations:
SD1: P1,041,356
SD3: P1,041,356
PD1: P1,041,356
PD2: P1,041,356

x
x
x
x

0.167
0.083
0.333
0.417

=
=
=
=

P173,906
P86,433
P346,772
P434,245

SD3 allocations:
SD1: P1,371,896
SD2: P1,371,896
PD1: P1,371,896
PD2: P1,371,896

x
x
x
x

0.073
0.098
0.332
0.497

=
=
=
=

P100,149
P134,446
P455,469
P681,832

Direct costs

SD1
SD2
SD3

SD1
P1,065,000

(1,338,202)
173,906
100,149
P
0

SD2
840,000

SD3
P 1,186,000

PD1
P3,760,000

PD2
P3,600,000

66,910

100,365

669,101

501,826

(1,041,356)
134,446
P
0

86,433
(1,371,896)
P
0

346,772
455,469
P5,231,342

434,245
681,832
P5,217,903

Note: SD1, SD2, and SD3 columns are off due to rounding.
Factory overhead rates:
PD1: P5,231,341 / 400,000 =
PD2: P5,217,903 / 300,000 =

P13.08 or P13 per DLH

P17.39 or P17 per DLH

Given that the rates are the same using the step and direct methods and the rates are only
slightly different using the reciprocal (algebraic) method, there seems in this case to be little
benefit to using the complex step and algebraic methods.

18

Problem 7-11
1.

General Factory Department Costs (P12,337):

Department
Storeroom
Cutting
Assembly
Finishing
Totals

Sq. Feet
2,400
5,600
4,800
3,200
16,000

PercentAllocation
15
P 1,851
35
4,318
30
3,701
20
2,467
100
P12,337

Storeroom Costs (PP8,510 + P1,851 = P10,361):

Department
Cutting
Assembly
Finishing
Totals

DLH
3,600
2,300
3,220
9,200

Percent
40
25
35
100

Allocation
P 4,145
2,590
3,626
P10,361

Allocation of Service Department Costs to Producing Depatment

Direct Cost
General Factory
Storeroom
Totals

2.

Gen. Fcty
P 12,337
(12,337)
P

Storeroom
P 8,510
1,851
(10,361)
P
0

Cutting
P10,192
4,318
4,145
P18,655

Manufacturing overhead Cutting Dept.

10,192
Manufacturing overhead- Assembly Dept.
8,111
Manufacturing overhead Finishing Dept.
8,796
Manufacturing overhead General Fcty Dept. 12,337
Manufacturing overhead Storeroom Dept.
8,510
Manufacturing overhead control
To close control account and record department costs
Manufacturing overhead Cutting Dept.
Manufacturing overhead Assembly Dept.
Manufacturing overhead Finishing Dept.
Manufacturing overhead Storeroom Dept.
Manufacturing overhead Gen Fcty
To allocate General Factory Dept. costs

4,318
3,701
2,467
1,851

Manufacturing overhead Cutting Dept.

Manufacturing overhead Assembly Dept.
Manufacturing overhead Finishing Dept.
Manufacturing overhead Storeroom
To allocation storeroom costs.

4,145
2,590
3,626

Assembly
P 8,111
3,701
2,590
P14,402

47,946

12,337

10,361

Finishing
P 8,796
2,467
3,627
P14,889