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Chapter 8 - Accounting for Factory Overhead - Illustrations
BS accountancy (University of Cebu)
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
PROBLEM 1: DENMARK COMPANY
The Denmark Company estimates its factory overhead for the next period at P1,000,000. It is estimated that 20,000 units will be produced at a materials cost of P800,000
and will require 50,000 direct labor hours at an estimated cost of P500,000. The machines will run about 160,000 hours.
Required: Compute the predetermined factory overhead rate based on:
Machine hours
Of
materials
125% cost
per unit of
1,000,000.00 20,000
50 production
per
machine
1,000,000.00
160,000 6.25 hour
Direct labor cost
500,000.0
1,000,000.00 0
800,000.0
1,000,000.00 0
Materials cost
Units of production
Direct labor hours
1,000,000.00 50,000
estimated/budgeted FOH
estimated/budgeted base
PROBLEM 2: MARCO COMPANY
The Marco Company budgeted overhead at P510,000 for the period for Department A on the
basis of a budgeted volume of 200,000 direct labor hours. At the end of the period, the Factory
Overhead Control account for Department A had a balance of P540,000; actual direct labor
hours were 210,000
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of direct
200% labor cost
per direct
20 labor hour
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
1. Compute for the overhead application rate
510,000.00
per direct
2.55 labor hr
200,000
.
2. Compute for the applied factory overhead
2.55 210,000
535,500
3. Compute for the over applied or under applied overhead
applied FOH
535,500.0
0
actual FOH
540,000.0
0
under
4,500.00
JOURNAL ENTRY:
Wages expenses
Cash
WIP
210,000
210,000
535,500
FOH applied
535,500
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
Rent expense - factory
Utilities expense- factory
Other factory expenses
540,000.
00
Accounts payable
FOH control
540,000.0
0
Rent exp - factory
Utilities exp - factory
540,000.00
540,000.
00
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
other factory exp
FOH applied
535,500
Under applied FOH
FOH control
4,500.00
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
540,000.00
COGS
4,500.00
Under applied FOH
FOH applied
500,000.0
0
Under applied FOH
500,000.0
0
FOH control
20% WIP
200,000.00
30% FG
300,000.00
50% COGS
500,000.00
4,500.00
1,000,000.00
1,000,000.0
0
WIP
FG
100,000.0
0
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
150,000.0
0
250,000.0
0
COGS
Underapplied FOH
500,000.00
PROBLEM 3: MARCO COMPANY
The Marco Company budgeted overhead at P510,000 for the period for Department A on the
basis of a budgeted volume of 200,000 direct labor hours. At the end of the period, the Factory
Overhead Control account for Department A had a balance of P540,000; actual direct labor
hours were 210,000
1. Compute for the overhead application rate
per
dire
ct
labo
510,000.00
200,000
2.55 r hr
2. Compute for the applied factory overhead
2.55 210,000
3. Compute for the overapplied or underapplied overhead
535,5
00
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
Applied FOH
535,500.
00
Actual FOH
540,000.
00
Under
4,500.00
JOURNAL ENTRIES:
wages exp
210,000
cash
WIP
210,000
535,500
FOH
applie
d
Rent exp - factory
Utilities exp - factory
other factory exp
535,500
540,000.
00
Accounts payable
FOH control
540,000.0
0
Rent exp - factory
Utilities exp factory
other factory exp
540,000.00
540,000
.00
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
FOH applied
535,500
underapplied FOH
4,500.00
FOH
contro
l
COGS
540,000.00
4,500.00
underapplied FOH
FOH applied
500,000.0
0
underapplied FOH
500,000.0
0
FOH
contro
l
20% WIP
200,000.00
30% FG
300,000.00
50% COGS
500,000.00
4,500.00
1,000,000.0
0
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
1,000,000.00
PROBLEM 4: THERMAL CORPORATION
Thermal Corporation has 2 producing departments and 2 service departments labeled P1, P2, S1, and S2 respectively. Direct costs for each department and the
proportion services costs used by various departments are as follows:
Cost
Center
Direct
Costs
Proportions of services used by:
S1
S2
P1
P2
P1
90,000.00
P2
60,000.00
S1
20,000.00
0%
80%
10%
10%
S2
32,000.00
20%
0%
50%
30%
In calculating predetermined overhead rate, machine hours are used as base in P1 and direct labor hours as the base in P2
P1
Machine Hours
Direct Labour
Hours
P2
50,000
40,000
40,000
20,000
1. Allocate the service department costs to operating departments and compute the FOH rate for P1 and P2 using the following methods:
Direct method
Step method - start with S1
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
Algebraic method
Direct method
S1
20,000.00
S2
32,000.00
P2
90,000.00
60,000.00
10,000.00
10,000.00
(32,000.00) 20,000.00
12,000.00
(20,000.00)
predetermined overhead rate
Step method start with S1
S1
P1
S2
120,000.00 82,000.00
2.4
4.1
P1
P2
20,000.00
32,000.00
90,000.00
60,000.00
(20,000.00)
16,000.00
2,000.00
2,000.00
(48,000.00) 30,000.00
predetermined overhead rate
18,000.00
122,000.00 80,000.00
2.44
4
Algebraic
method
S1
Algebraic
method
S2
P1
P2
S1 =
S2 =
20,000 + 20%
(S2)
32,000 + 80%
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
20,000.00
32,000.00
90,000.00
60,000.00
(31,429)
25,143
3,143
3,143
(S1)
11,428.57
(57,142.86) 28,571.43
17,142.86
S1 =
20,000 + 20%(32,000 + .
8S1)
-
-
121,714.29
80,285.71
S1 =
20,000 + 6,400 + .16S1
2.43
4.01
predetermined overhead rate
Direct method
S1
20,000.00
S2
32,000.00
P1
60,000.00
10,000.00
10,000.00
(32,000.00) 20,000.00
12,000.00
predetermined overhead rate
20,000 + 6,400
.84S1=
S1=
26,400
26,400/.84
S1=
31,429
S2 =
57,143
P2
90,000.00
(20,000.00)
.84S1=
120,000.00 82,000.00
2.4
4.1
Step method start with S1
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CHAPTER 8: ACCOUNTING FOR FACTORY OVERHEAD (ILLUSTRATUVE PROBLEMS)
S1
S2
P1
P2
20,000.00
32,000.00
90,000.00
60,000.00
(20,000.00)
16,000.00
2,000.00
2,000.00
(48,000.00) 30,000.00
predetermined overhead rate
18,000.00
122,000.00 80,000.00
2.44
4
Algebraic
method
Algebraic
method
S1
S2
P1
P2
S1 =
S2 =
20,000 + 20%
(S2)
32,000 + 80%
(S1)
20,000.00
32,000.00
90,000.00
60,000.00
(31,429)
25,143
3,143
3,143
11,428.57
(57,142.86) 28,571.43
17,142.86
S1 =
20,000 + 20%(32,000 + .
8S1)
-
-
121,714.29
80,285.71
S1 =
20,000 + 6,400 + .16S1
2.43
4.01
predetermined overhead rate
.84S1=
20,000 + 6,400
.84S1=
S1=
26,400
26,400/.84
S1=
31,429
S2 =
57,143
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