Cost Accounting Problems 7 & 8 de Leon

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Cost Accounting 7 & 8

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Addition: Lesson of a Team: A
PROBLEMS
Problem 1
The Denmark Company estimates its factory overhead for the
period at 500, 000. It is estimated that 10, 000 units will e produced
materials cost of !00, 000 and will re"uire
re"uire #5, 000 direct laor hours a
estimated cost of #50, 000. The machines will run aout $0, 000 hours
%e"uired& The predetermined factory overhead rate ased on&

1. 'aterial cost
#. (nits of production
). 'achine hours
!. Direct laor cost
5. Direct laor hours
Answer:
1. 500 000*!00 000 x 100 + 1#5 of direct materials cost
#. 500 000*10 000 + 50*unit
). 500 000*$0 000 + -.#5*machine hours
!. 500 000*#50 000 x 100 + # of direct laor cost
5. 500 000*#5 000+ #0*direct laor hours
Problem 2
The 'arco Company udeted overhead at / #55, 000 for
period for Department , on the asis of a udeted volume of / 100,
direct laor hours. t the end of the period, the actory 2verhead Con
account for Department  had a alance of / #30, 0004 actual direct la
hours were / 105, 000
%e"uired&
1. Compute for the overhead application rate
#. Compute for the applied factory overhead
). Compute for the over or underapplied
underapplied overhead
Answer:
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). actory 2verhead Control 8actual9 / #30,000

6ess& pplied actory 2verhead #-3,350
(nderapplied 2verhead / #,
# ,#50
Problem 3
'arvin Company:s estimated factory overhead for the year wa
!5-, 1#0 and the actual overhead was / !30, $00. 'achine hours w
used in determinin the factory overhead application rate. There wer
$!, 500 actual machines and / $1, !50 estimated machine hours du
the year.
year.
%e"uired&
. /repare ;ournal entries to record the followin
1. The applied factory overhead
#. The actual factory overhead
). The closin of the applied overhead account and actual fact
account.
<. ssume the followin amounts of applied factory overhead in e
account.
Cost of oods sold )50 000
inished oods inventoryend 100 000
=ork in process inventoryend #) #00
llo
lloca
cate
te the
the over
over or unde
underrapp
appli
lied
ed fact
factor
ory
y over
overhe
head
ad to thes
these
e
accounts.
Answer:
A. 1.
1. =ork in /rocess !3),#00
actory 2verhead pplied !3),#00>
>$!, 000 x 5.-0 + !3), #00
#. 2 Control !30,$00
'iscellaneous ccounts !30,$00
). actory 2verhead pplied !3),#00

Cost of ?oods @old #,!00
actory 2verhead Control !30,$00
B. Cost of oods sold )50,000*!3),#00 x #,!00+ 1,335

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Problem 4
The Allery Corporation uses the ;o order cost system of account
@hown elow is a list of the ;os completed durin the month of 'a
showin the chares for materials re"uisitioned and for direct laor cos
Bo 'aterial Cost Direct 6aor
1#) )00 -00
1#! 1 0$0 !0
1#5 3#0 1 !00
1#- ! #00 5 1#0
%e"uired&
ssumin that factory overhead is applied on the asis of direct la
costs and that the predetermined rate is 1$0 compute&
1. The amount of overhead to e added to the cost of each ;o comple
#. The total cost of each ;o completed durin the month.
Answer:
1. Bo 1#) Bo 1#! Bo 1#5 Bo 1#-
D6 cost -00 !0 1,!00 5,1#0
27 rate 1$0 1$0 1$0 1$0
pplied 27 1,0$0 1,-# #,5#0 ,#1-
#. Bo 1#) Bo 1#! Bo 1#5 Bo 1#- T2T

D' )00 1,0$0 3#0 !,#00
-,)00
D6 -00 !0 1,!00 5,1#0
$,0-0
2 1,0$0 1,-# #,5#0
1!,50$
T2T6 1,$0 ),31# !,-!0 1$,5)-
#$,$-$
Problem 5
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Center Costs @1 @# /1 /#
/1 0 000
/# -0 000
@1 #0 000 .$0 .10 .10
@# )# 000 .#0 .50 .)0
In calculatin predetermined overhead rates, machine hours are used

the ase in /1 and direct laor hours as the ase in /#.
/1 /#
'achine hours 50 000 !0 000
Direct laor hours !0 000 #0 000
%e"uirements&
1. llocate the service department costs to operatin departments
compute the factory overhead rate for /1 and /# usin the follow
methods&
. Direct 'ethod
<. @tep method  start with @1
C. leraic 'ethod
#. ssume the company uses ;ust one asis for applyin overhead to ;
oin throuh oth /1 and /#, compute the overhead rate usin di
laor hours as ase.
Answer:
1. . /1 /# @1 @#
Direct Cost 0 000 -0 000 #0 000
)# 000
llocated 27&
@1 10 000 10 000 8#0 0009
@# #0 000 1# 000
)# 000
Total 27 1#0 000 $# 000
<ase 50 000*mhrs #0 000*dlhrs
27 %ate #.!*mhrs !.1*dlhrs
<.
Direct Cost 0 000 -0 000 #0 000
)# 000
llocated 27&
@1 # 000 # 000 8#0 0009
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27 %ate #.!!*mhrs !*dlhrs
C.
Direct Cost 0 000 -0 000 #0 000
)# 000
llocated 27&
@1 ) 1!) ) 1!) )1 !#
1!)
@# #$ 53# 13 1!) 811
853 1!)9
Total 27 1#1 315 $# #$-
<ase 50 000*mhrs #0 000*dlhrs
27 %ate #.!)*mhrs !.01*dlhrs
@1 + #0,000 E #0 @#
@# + )#,000 E $0 @1
@1 + #0000 E #0 8 )#,000 E $0 @19

+ #0,000 E -,!00 E .1- @1
@1  .1-@1 + #-.!00
@1 + #-,!00*.$!
+ )1,!#
@# + )#,000 E $0 )1,!#

+ )#,000 E #5,1!)
+ 53,1!)
Problem 6
The <C Company has two service departments and two produ
departments
@ervice Departments: to costs&
Department 1  %epair / 1!,000
Department #  cafeteria 11 000
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Department @"uare eet Ast. Direct

hours
%epair 1,500 ),500
Cafeteria 1,$00 1,#00
'achinery #,000 #,)00
ssemly ),000 1,300
Total $,)00 $,300
The costs of the %epair Department are allocated on the asis of s"u
feet. The costs of the cafeteria Department are allocated on the asi
estimated direct laor hours. The producin departments use estima
direct laor hours& 1,500 in Department  and 1,#50 in Department <.
%e"uired& llocate the total costs of the service departments to
producin departments 8compute the departments: factory rate9 y us
the followin&
1. Direct method
#. @tep method  start with the repair Department
Answer:
1. Direct 'ethod
'achinery ssemly %epair Cafeter
Direct cost / 5#,500 / !$,000 / 1!,000 / 11,00
llocated cost&
%epair 5,-00> $,!00>> 8 1!,0009
Cafeteria -,)#5>>> !,-35>>>> 8 11, 00
Total 27 / -!,-#5 / -1,035
<ase 1,500D67rs 1,#50 D67rs
.
2 %ate / /!$.$-*D67r
!).0$D67r. .
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#. @tep 'ethod
'achinery ssemly %epair Cafeteria
Direct cost / 5#, 500 / !$, 000 / 1!, 000 / 11, 000
llocated
cost
%epair !, 11> -, 13->> 8 1!, 0009 ), 305>>>
Cafeteria $, !55>>>> -, #50>>>>> 8 1!, 3059
Total / -5, 03! / -0, !#-
<ase 1, 500 1, #50
D67rs. D67rs
2 rate / /!$.)!*D67
!).)$*D67r r.
>81! 000 x # 000*- $009

>>81! 000 x ) 000*- $009
>>>81! 000 x 1 $00*- $000
>>>>81! 305 x # )00*! 0009
>>>>>81! 305 x 1 300*! 0009
Problem 7
Central /arkway Corp. has two producin and two se
departments laeled /1, /#, @1, @#, respectively. Direct cost for e
department and the portion of service costs used y the va
departments are as follows&
Cost Direct /roportion of service used y&
Center Costs @1 @# /1 /#
/1 / 1#0,000
/# $0,000
@1 #5,000  .#5 .50 .#5
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/1 /# @1 @#
Direct cost 1#0, 000 $0, 000 #5, 000 10, 00
llocated
@1 1), ))) -, --3 8 #-, --39> -, --3
@# $, ))) -, --3 1, --3 81-, --3
Total 1!1, --- ), ))!
@1 + #5, 000 E 10 of @#

@# + 10, 000 E #5 of @1
@1 + #5, 000 E 10 810, 000 E .#5@1

+ #5, 000 E 1, 000 E .0#5@1
@1  .0#5 @1 + #-, 000
@1 + #-, 000*.35
+ #-, --3>
@# + 10, 000 E .#58#-, --39

+ 1-, --3>>
Problem 8
'eastar Company:s normal operatin capacity is estimated at 5,
machine hours per month. t this operatin level, Fxed factory overh
is estimated to e /)!, #00 and variale factory overhead is estimated
e /!1,$00. Durin Govemer, the company operated 100,000 mach
hours. ctual factory overhead for the month totalled /3$, -00.
%e"uired& Compute for the followin

1. The over or under applied factory overhead.
#. The spendin variance.
). The idle capacity variance.
Answer:
Total /er 'ach.7r.
ixed )!,#00 0.)- 8)!,#00*5,0009
Hariale !1 $00 0 !! 8!1 $00*5 0009
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>8100,000 x .$09
#. ctual factory overhead / 3$, -00

6ess& <udet allowed on actual hours
ixed )!, #00
Hariale !!, 000> 3$, #00
@pendin variance  unfavorale / !00
>8100,000 x .!!9
). <uded allowed on actual hours / 3$, #00

6ess& pplied factory overhead $0, 000
Idle capacity variance favorale 8 1, $009
Problem 9
Gormal annual capacity for ner Company is 3#,000 units, with F
factory overhead udeted at /)), $!0 and an estimated variale fact
overhead rate for /!.#0 per unit. Durin 2ctoer, actual production
5,!00 units, with a total overhead of /15, 10.
%e"uired& Compute for the followin

1. The applied factory overhead
#. The over or under applied factory overhead
). The spendin variance
!. The idle capacity variance
Answer:
1.
Total /er unit
ixed / )), $!0 / 0.!3 8)), $!0*3#, 0009
Hariale )0#, !00 !.#0 83#, 000 x !.#09
Total /))-, #00 / !.-3
+5, !00 x !.-3

+#5, #1$
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). ctual actory 2verhead / 15, 10

ixed #, $#0>
Hariale ##, -$0>> #5, 500

@pendin variance  favorale 8/ , 509
>8)), $!0*1# months9
>>85, !00 x !.#09
!. <uded allowed on actual hours /#5, 500

6ess& pplied #5,#1$
Idle capacity variance  unfavorale / #$#
Problem 1
Gorman Corporation uses a exile udet system a prepared
followin information for #01#.
Gormal capacity 'aximum capaci
/ercentae of capacity $0 100
Direct laor hours !$,000
-0,000
Total udeted factory overhead /#5#, 000
000
Gorman planned to operate at normal capacity ut actually operated
0 of maximum capacity durin #01#. The actual factory overhead
#01# was /#3), 000.
%e"uirements&
1. (sin 7I62 method, compute for the variale rate per hour.
#. Determine the Fxed portion of the udeted factory overhead.
). Compute for the spendin variance.
!. Compute for the idle capacity variance.
Answer:
1. Hariale rate*hour + J#30, 000  #5#, 000J
-0, 000  !$, 000
+ /1.50*D67r.
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8!$, 000 x 1.509 JJJJJJJ JJ 3#, 000J

ixed 1$0, 000 1$0, 000
actory 2verhead rate + #5#, 000 + 5.#5* D67rs.

!$, 000
ctual factory overhead #3), 000

6ess& pplied #$), 500>
2verapplied actory 2verhead 810, 5009
>8-0, 000 x 09 x 5.#5
). ctual factory overhead #3), 000

ixed 1$0, 000
Hariale $1, 000> #-1, 000
@pendin variance  unfavorale 1#, 000
>85!, 000 x 1.509
!. <udet allowed on actual hours #-1, 000

6ess& pplied #$), 500J
Idle capacity variance  favorale 8##, 5009
Problem 11
The strawerry Corporation has the followin information relatin
applied and actual factory overhead.
actory overhead control /)0, 500
pplied factory overhead ),300
pplied factory overhead costs are in the followin accounts.
Cost of oods sold /)#, 000
Andin work in process inventory ),500
Andin Fnished oods inventory !,#00
%e"uired&
a. llocate the under or overapplied factory to those acc
distorted y usin what turned out to e an incorrect factory overh
application rate.
 /repare the endofperiod entries
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2verapplied factory overhead  favorale 8, #0
Cost of oods sold )#, 000*), 300 x , #00 + 3,!1-

=ork in process inventory ), 500*), 300 x , #00 + $1
inished oods inventory !, #00*), 300 x , #00 + 3
,#00
. pplied factory overhead ),300

Cost of oods sold
=ork in process inventory
$11
inished oods inventory
3)
actory overhead control
)0,500
Problem 12
or many years Tinor Company has used a manufacturin overhead r
ased on direct laor hours.  new plant accountant has suested t
the company may e ale to assin overhead costs to products m
accurately y usin an activityased costin system. The accoun
explains that y creatin an overhead rate for each production acti
that causes overhead costs, the resultin product costs will reect
accurate measure of overhead cost. The direct material cost is /1#0
unit. The udeted hours are $,0)0 direct laor hours. The accoun
has identiFed activity centers to which overhead costs are assined.
cost pool amounts for these centers and their selected activity drivers
#01#.
CTIHITK CAGTA%@ C2@T@ C

D%IHA%@
'aterials handlin / -0, 000 1,#00
times handled
@chedulin and setups $0, 000 !00 setups
Desin section 10, 350 100 chanes
Go of parts 50 000 500 parts
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Lty. D67 D6 Go. of time Go. of

Go. of
/rod. /roduced (sed Cost 7andled /arts Ch
@etups
 50 100 /-, 000 #0 - )
< 100 )00 1$,000 !0 10 5
%e"uired&
1. Compute the unit cost for each product usin direct laor ho
the overhead application ase.
#. Compute the unit costs for each product usin activity
costin.
Answer:
1. /roduct  /roduct <
Direct materials 850 x /1#09 / -,000 8100 x /1#09 / 1#,
Direct laor 1,000 ),
actory overhead 8100 x / #59 #,500 8)00 x / #59
500
Total manufacturin cost / ,500 / ##, 50
Go. of units 50 100J
Cost per unit / 10*unit / ##
actory overhead rate + /#00, 350*$,0)0 direct laor hours + / #5*D67
#. /roduct  /roduct <

Direct materials 850 x /1#09 / -,000 8100 x /1#09 / 1#,0
Direct laor 1,000 ),
actory overhead
'aterial handlin 8!0 x /509 #,000 8#0 x /509 1,
@chedulin M setup 83 x #009 1,!00 85 x #009 1.
Desin section 85 x / 103.509 5)3,500 8) x 103.509
)##.50
Go. of parts 810 x 1009 1,000 8- x 1009
-00J
Total costs / 11,)3.50 /
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!R"E#$ALSE %"ES!&O'S
Indicate whether the followin statements are true or false y insertin
the lank space provided, a capital NTO for true or NO for false.
1. @ervice departments are sometimes called indeterminate

centers , while production departments would e the Fnal cost centers
#. @ervice departments are production departments, su
assemly departments, that manufactured oods.
). 2ne of the purposes of service department cost allocation
value in inventory for external Fnancial reportin.
!. The direct method is a method of cost allocation that char
costs of service departments to user departments and inores
services used y other service departments.
5. (nder, the step method of cost allocation, the Fnal amoun
pesos allocated to any production department is inuenced y the or
in which the allocation is made from the service departments.
-. If there are no interservice department activities, then all
allocation methods will ive identical results.
3. =hen a plantwide rate is used, this means that a sinle
used to allocate overhead to all departments in the company.
$. =ith the aleraic method, each department:s costs are set
in an e"uation where total costs e"ual the sum of direct costs
allocated costs.
. Interservice departments activities are fully inored y oth
direct and step methods of cost allocation.
10. 2verapplied overhead occurs when actual is less than app
27.
11. The predetermined overhead rate is an amount otained
dividin the total overhead for the past period y the total overh
allocation ase for the comin period.
1#. =hen overapplied overhead is assined to Cost of ?oods
the ePect is to increase the alance on the Cost of ?oods @old account
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15. The sum of the spendin variance and the volume var
e"uals the total manufacturin overhead variance.
A'S(ER:
1. T -. T 11. 
#.  3. T 1#. 
). T $. T 1). T
!. T .  1!. T
5. T 10. T 15. T
M"L!&PLE )O&)ES
1 'anufacturin overhead applied was /1#0, 000, while ac

overhead incurred was /1#!, 000. =hich of the followin is alw
true of the aoveR
a Direct laor activity was overestimated.
 2verhead was overapplied y /!, 000.
c 2verhead was underapplied y /!, 000.
d This diPerence must e reported as a loss for the period.
# Depreciation ased on the numer of units produced would

classiFed as what type of costR
a 2utofpocket
 'arinal
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) The only method of allocatin service department cost

producin departments that considers reciprocal service is ca
the
a Direct method
 @tep method
c 2utofstep method
d leraic method
!. In the determination of factory overhead application rates,

numerator of the formula is the&
a. ctual factory overhead for the next period

. Astimated factory overhead for the next period
c. ctual laor hours for the next period
d. Astimated laor hours for the next period
5. The variale factory overhead application rate under the nor

practical, and expected activity levels would e the same
a. Axpect for normal volume

. Axpect for practical capacity
c. Axpect for expected activity
d. or all three activity levels
-. =hich productive capacity level does not consider product demand,

at the same time accounts for anticipated and unavoidale interrupt
in productionR
a. Axpected productive capacity

. Gormal productive capacity
c. Theoretical or maximum productive capacity
d. /ractical productive capacity
3. =hich productive capacity level does not have provision for eithe
lack of sales orders or interruptions in production 8due to work stoppa
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$. =hich productive capacity level is ased in estimated production

the next periodR
a. Axpected productive capacity

. Gormal productive capacity
c. Theoretical or maximum productive capacity
. =hich of the followin descries a part of step method of allocationR
a. ll services etween intermediate cost centers

simultaneously allocated to Fnal cost centers.
. It inores services etween intermediate cost centers
c. 6inear alera is re"uired for the allocation
d. 2nce an allocation is made from on service department
further allocation is made to this department.
10. =hich of the followin is not true of the methods of allocatin serv
department costs to user departmentsR
a.  cause and ePect asis is the preferred method of allocation

. Aach method allocates the same total cost when there are
interservice department activities.
c. If a cause and ePect relationship cannot e estalishe
service department costs, then an allocation cannot e conducte
d. The level of detail associated with allocatin service departm
costs should e decided on a costeneFt asis.
Answer:
1. c -. d
#. c 3. c
). d $. a
!.  . d
5 d 10 a
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M"L!&PLE )O&)E + PROBLEMS

The followin information for %am Corporation relates to "uestion 1 an
@ervice departments 8total estimated costs9
<uildin and round maintenance / #1,-
@toreroom 15,
/roducin departments 8estimated factory overhead costs9
Department  !#,00
Department < 51,00
Ast. D6 7rs. Ast. @". t. Go.

%e"uisitions
<ld. and round maintenance 350
150
@toreroom 1)0
Department  1,#5 $0
Department < 1,#00 #.))0
The ase to e used for allocatin the cost of <uildin and ro
maintenance is s"uare feet and for the storeroom cost is the nume
re"uisition. Direct laor hours are used to compute the prod
departments: factory overhead application rate
1. (sin the direct method, what is Department :s factory overh
rateR
a. / )0.)0
. / !3.!-
c. / 55.30
d. / -0.5)
#. (sin the aleraic method, compute for the uildin and ?r

'aintenance Department total amount to e allocated to
@toreroom @ervice Department and oth producin departme
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<oone 'anufacturin had worked on two ;os, ;o 101 and Bo 10#
year. The estimated manufacturin overhead for last year was / )0,
8Fxed9 and /5.00 per direct laor hour 8variale9 and estimated #,
direct laor hours. The factory overhead control account has a alanc
/ )3,000. ctual hours used for Bo 101 was 1,#00 and for Bo 10# w
1,000.
). =hat is the total spendin varianceR

a. / !,000 unfavorale
. / ),000 unfavorale
c. /!,000 favorale
d. / 3,000 favorale
!. =hat is the total production varianceR

a. / !,000 unfavorale
. / ),000 unfavorale
c. / ),000 favorale
d. / 3,000 favorale
The followin information relates to ay Corporation for the

accountin period.
/roducin Departments @ervice Departments
C D 
Direct costs / 15,000 / #0,000
$0,000 / -0,000
/roportion of service y  to&
< 10
C -0
D )0
/roportion of service y < to&

 )0
C #0
D 50
5. (sin the aleraic method department :s cost allocate

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-. (sin the aleraic method, department <:s cost allocate

department C is&
a. / 3,3!
. / 1),1#
c. / 1!,0#1
d. / #,0#1
'% Corp. currently uses a Frmwide overhead application ased

expected direct laor hours.The followin information is anticipated at
einnin of the year.
Departmen
Department <
Direct materials / #5.00*1.
13.00*1.
Direct laor hours 10,000 5,00
'achine hours #,000 10,0
2verhead /115, 000 /$5,
6aor rate / 15.00*hr / 1#.00*
3. If the Frm maintains the current method, the overhead appli

rate is&
a. / 3.-3*hr
. /11.50*hr
c. /1).))*hr
d. /#0.00*hr
$. If departmental rates were adopted,what would e the rate

Departments 
8<ased on direct laors hours9 and < 8ased on machine hours9
 <
a. /11.50 / $.50
. /11.15 /13.00
c. /53.50 / $.50
d. /53.50 /13.50
@ensual @cents, Inc. uses ;oorder cost system with machine hours
the overhead ase. t the einnin of last year, @ensual estima
)$,000 machine hours were loed ut /15), 500 of overhead cost w
incurred.
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c. /#,000 underappld
d. /),500 underapplied
The followin information relates to Donna Corporation for the last

Donna uses direct laor hours as anoverhead ase.
Astimated direc laor hours 1)-,000 hours
Astimated manufacturin overhead costs / 10$,$00
ctual manufacturin overhead costs 10$,!$0
pplied manufacturin overhead costs 110,000
10. =hat was the actual numer ofn direct laor hours worked
year at DonnaR
a. $-,3! hours
. $$,)#0 hours
c. 1)5,-00 hours
d. 1)3,500 hours
D:@antos uses a ;oorder cost system with machine hours as

overhead ase. The followin information relates to D:@antos for last y
Astimated machine hours for the year !#,000
ctual machine hours for the year !0,$00
/redetermine overhead rate /1.50 per '7
(nderapplied factory overhead / #,-00
11. =hat is the peso amount of the followin itemsR

Astimated 27 pplied 27 ctual 27
a. / -1,#00 / -),000 /-0, !00
. /-1, #00 -),000 -5,-00
c. /-), 000 -1,#00 1$,-00
d. /-), 000 -1,#00 -),$00
Bustine Company udeted total variale overhead costs at / 1$0,000

the current period. In addition, they udeted costs for factory
/#15, 000, costs for depreciation of oSce e"uipment at /1#, 000 costs
oSce rent at /#,000, and costs for deprecation of factory e"uipmen
)$, 000. ll these costs were ased upon estimated machine
$0,000. t the end of the period, the actory 2verhead control acco
had a alanced of /)$3, $35. ctual machine hours were 3!,000.
1# =hat as the over or underapplied factory overhead fo
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Candice Company uses activityased costin to determine the

product costs for external reports. The company has two products& Ca
 and Candy <. The annual production sales of Candy  are 10,000 u
and of Candy < are !,000 units. There are three overhead centers, w
estimated overhead costs and expected activity as follows&
ctivity Ast. overhead Axpected ctivity

Center Candy  Candy < Total
ctivity 1 #5,000 150 100
#50
ctivity # -5,000 $00 #00
1,000
ctivity ) 0,000 1,000 #,000 ),000
1). The overhead cost per unit of Candy  under activity

costin is
a. /-.00
. /.30
c. /1.50
d. /).00
e.
The followin information relates to /ure Corporation for the
accountin period .
@ervice Department Direct Cost
 /$0, 000
< -0, 000
/roducin Department
C 15, 000
D #0, 000
/roportion of service y  to&
< 10
C -0
D )0
/roportion of service y < to&
 )0
C #0
D 50
1! (sin the simultaneous method, Dept. :s allocated to D

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'arvine Company uses a ;o costin system and applies overhead

products on the asis of direct laor cost. Bo no. 35 the only ;o
process on Banuary 1 had the followin costs assined as of that da
direct materials, /!0, 0004 direct laor, /$0, 0004 and factory overhe
/1#0, 000. The followin selected costs were incurred durin the y
#01-&
Traceale to ;os&
Direct 'aterials / 13$,000
Direct laor )50,000
/5#), 000
Got traceale to ;os&
actory materials and supplies !-,000
Indirect laor #)5,000
/lant maintenance 3), 000
Depreciation on factory e"uipment #, 000
2ther factory costs 3-, 000
000
'arvin:s proFt plan for the year included udeted direct laor of /)
000 and factory overhead of /)$!, 000
15. ssumin no workinprocess on Dec. )1, 'arvin:s over

for the year as
a. /11,000 overapplied
. /#!,000 overapplied
c. /),000 underapplied
d. /11,000 underapplied
Candice Corporation produces reusale Christmas cards in

departments& printin and laminatin. These departments are suppo
y two service departments& /ersonnel and 'aintenance. /ersonnel
the numer of employees as an allocation ase and 'aintenance u
machine hours. The expected level of activity for next "uarter is sho
elow.
Go. of employees 'ach
hours
/ersonnel !0 
'aintenance -0 
/rintin 1#0 -0 00
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1-. =hat is the total amount of service cost that shou

allocated to the /rintin Department under the direct and
methodR
Direct method @tep method
a. /-$,300 /33,030
. /33,030 /3$,000
c. /3$,000 /$1,100
d. /3$,000 /33,030
@uper @oak produces two types of spones& Gatural and @upersuds. <
are produced on the same assemly line ut are considered separ
divisions. The company wants to know how to allocate manufactu
overhead to the products. The relevant data for the possile alloca
ases are iven elow
Gatural @uper@uds
'aterials used / !0,000 / #5,000
Direct laor hours #0,000 )5,
Direct laor costs / 100,000 / 1!5
'achine hours -,000 15,000
2utputs units #5,000 )0,000
The company incurred manufacturin overhead of /!$,000.

13. (sin Direct laor hours, how much overhead will e allo
to the super@uds
a. /#,5!!
. /)0,5!5
c. /)0,!55
d. /)!,05!
1$. (sin machine hours, how much overhead will e alloc

the GaturalR
a. /1),31!
. /#$,500
c. /13,!55
d. /)!,#$-
7ackers Corp. accumulated the followin information for its product

and <,
/roduct  /roduct < Total
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Total setup cost incurred /#0, 000 / !0,000

000
Direct laor hour per unit # 1
 traditional costin system would allocate setup costs on the asi
direct laor hours. n <C system would trace costs y spreadin the c
per atch over the units in a atch.
1. =hat is the setup cost per unit of /roduct  under each cost
systemR
Traditional <C @ystem
a. /!.$0 /10.00
. #.!0 10.00
c. !0.00 #00.00
d. !.$ #0.00
 summary of the usae of the service department services y ot
service departments as well as y the two producin departments is
follows&
A"uipment <uildin /rod

Dept.
@ervin Cost Center @upervision 'aintenance 2ccupancy
1 Dept.#
@upervision 0 10 5
!0 !5
A"uinpment maint. 0 0 0 !5 5
<uildin occunpanny 10 10 0
!5
Direct costs in the varius deprtments are as follows&
Department Direct Cost 6ael
@upervision / )5,000 @1
A"uipment maintenance )0,000 @#
<uildin occupancy 0,000 @)
/roduct Dept .Go. 1 )50,000 /1
#0. If the direct method of allocation is used, how much of the supervi
department:s cost would e allocated to the uildin occu
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d. / 5, #50
#1. If the direct method of allocation is used, how much of the e"uipm
maintenance costs would e allocated to production department Go. 1
a. 0
. / 1), 500
c. / 1-, 500
d. / )0, 000
##. If the step method of allocation is used, how much would e alloca
from supervision to production department Go. 1
a. / 1!, 000
. / 1-, !31
c. / 13, -00
d. / 1$, 500
#). If the step method of allocation is used, how much would e alloca
from supervision to uildin occupancyR
a. 0
. / 1, 350
c. / #, #00
d. / #, !!!
@taraQer Company loed 3, #50 machine hours for the month of Bu

/!#, 500 was spent for manufacturin overhead and this overhea
allocated on the asis of machine hours. The Company operat
departments4 however, one department was closed for the month of B
due to poor market conditions for its product. It was decided that
department should e allocated a lump sum of 5, 000 as its share of B
overhead.
#!. If

Cost Accounting Problems 7 & 8 de Leon

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Cost Accounting Problems 7 & 8 de Leon

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Cost Accounting 7 & 8

%e"uired& The predetermined factory overhead rate ased on&

#. 500 000*10 000 + 50*unit

). 500 000*$0 000 + -.#5*machine hours

!. 500 000*#50 000 x 100 + # of direct laor cost

5. 500 000*#5 000+ #0*direct laor hours

Cost Accounting 7 & 8

). actory 2verhead Control 8actual9 / #30,000

). actory 2verhead pplied !3),#00

B. Cost of oods sold )50,000*!3),#00 x #,!00+ 1,335

Cost Accounting 7 & 8

#. Bo 1#) Bo 1#! Bo 1#5 Bo 1#- T2T

Cost Accounting 7 & 8

In calculatin predetermined overhead rates, machine hours are used

Cost Accounting 7 & 8

27 %ate #.!!*mhrs !*dlhrs

@1 + #0000 E #0 8 )#,000 E $0 @19

@# + )#,000 E $0 )1,!#

Cost Accounting 7 & 8

Department @"uare eet Ast. Direct

Cost Accounting 7 & 8

>81! 000 x # 000*- $009

Cost Accounting 7 & 8

@1 + #5, 000 E 10 of @#

@1 + #5, 000 E 10 810, 000 E .#5@1

@# + 10, 000 E .#58#-, --39

%e"uired& Compute for the followin

Cost Accounting 7 & 8

#. ctual factory overhead / 3$, -00

). <uded allowed on actual hours / 3$, #00

%e"uired& Compute for the followin

+5, !00 x !.-3

Cost Accounting 7 & 8

). ctual actory 2verhead / 15, 10

Hariale ##, -$0>> #5, 500

!. <uded allowed on actual hours /#5, 500

Cost Accounting 7 & 8

8!$, 000 x 1.509 JJJJJJJ JJ 3#, 000J

actory 2verhead rate + #5#, 000 + 5.#5* D67rs.

ctual factory overhead #3), 000

). ctual factory overhead #3), 000

!. <udet allowed on actual hours #-1, 000

Cost Accounting 7 & 8

2verapplied factory overhead  favorale 8, #0

Cost of oods sold )#, 000*), 300 x , #00 + 3,!1-

. pplied factory overhead ),300

CTIHITK CAGTA%@ C2@T@ C

Cost Accounting 7 & 8

Lty. D67 D6 Go. of time Go. of

actory overhead rate + /#00, 350*$,0)0 direct laor hours + / #5*D67

#. /roduct  /roduct <

Cost Accounting 7 & 8

1. @ervice departments are sometimes called indeterminate

Cost Accounting 7 & 8

1 'anufacturin overhead applied was /1#0, 000, while ac

a Direct laor activity was overestimated.

 2verhead was overapplied y /!, 000.

c 2verhead was underapplied y /!, 000.

d This diPerence must e reported as a loss for the period.

# Depreciation ased on the numer of units produced would

Cost Accounting 7 & 8

) The only method of allocatin service department cost

#. 500 00010 000 + 50unit

). 500 000$0 000 + -.#5machine hours

5. 500 000#5 000+ #0direct laor hours

27 %ate #.!!mhrs !dlhrs

actory overhead rate + /#00, 350$,0)0 direct laor hours + / #5D67