Problem 1
A company 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 – P40, and Direct labor – P60. Direct labor is paid at a rate of P24
per hour. The machine runs for 20 minutes to produce a unit. Total
estimated overhead is expected to consist of P400,000 for variable overhead
and P400,000 for fixed overhead. Using normal capacity,
1. compute the predetermined overhead rate based on units of
production.
2. compute the predetermined overhead rate based on material cost.
3. compute the predetermined overhead rate based on direct labor cost.
4. compute the predetermined overhead rate based on direct labor
hours.
5. compute the predetermined overhead rate based on machine hours.
Problem 2
A company has the following data for two years:
2019
10,000
P15
2020
11,500
P18
Units produced
Overhead applied per unit
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.
6. Compute the estimated units of production used to obtain the
overhead allocation rates in both years.
7. Compute the overapplied (underapplied) overhead in 2019.
8. Compute the overapplied (underapplied) overhead in 2020.
Problem 3
The normal annual capacity for a company is 48,000 units with production
rates being level throughout the year. The budget for the month shows
fixed overhead of P1,440 and an estimated variable overhead rate or P2.10
per unit. Actual output of 4,100 units with a total overhead of P9,000 were
made during the month.
9. Compute the applied overhead.
10. Compute the over or underapplied overhead for the month.
Problem 4
The normal capacity for a company is 36,000 machine hours, with a fixed
overhead budgeted at P16,920 and an estimated variable overhead rate of
P2.10 per hours. During the month, actual production required 2,700
machine hours, with a total overhead of P7,800.
11. Compute the applied overhead.
12. Compute the over or underapplied overhead for the month.
Problem 5
ABC Company has 2 service departments and 2 producing departments:
Service Departments and Costs:
Department 1 – Repair
P14,000
Department 2 – Cafeteria
11,000
Producing Departments and FOH Costs:
Department A – Machinery
52,500
Department B – Assembly
48,000
Additional information:
Department
Repair
Cafeteria
Machinery
Assembly
Total
Square Feet
1500
1800
2000
3000
8300
Estimated Direct Labor Hours
3500
1200
2300
1700
8700
The cost of the Repair Department is allocated on the basis of square feet.
The cost of the Cafeteria Department is allocated on the basis of estimated
direct labor hours. The producing departments use estimated direct labor
hours: 1500 in Department A and 1250 in Department B.
13. Allocate the total costs of the service departments to the producing
departments (compute the departments’ FOH rate) using Direct
Method.
14. Allocate the total costs of the service departments to the producing
departments (compute the departments’ FOH rate) using Step
Method (start with the Repair Department).
Problem 6
Central Parkway Corp. has 2 producing and 2 service departments labeled
P1, P2, S1, and S2, respectively. Direct costs for each department and the
allocation of service costs by the various departments are:
Cost
Center
Direct
Costs
Allocation of Services
S1
P1
P2
S1
S2
120,000
80,000
25,000
10,000
S2
25%
10%
P1
50%
50%
P2
25%
40%
15. Allocate the service department cost using algebraic method.
Problem 7
Abner Company’s normal annual capacity is 72,000 units, with fixed FOH
budgeted at P33,840 and estimated variable FOH rate for P4.20 per unit.
During the month, actual production was 5,400 units, with a total overhead
of P15,910.
16. Compute the applied FOH
17. Compute the over/under applied FOH
18. Compute the spending variance
19. Compute the idle capacity variance