Chapter 8 - Accounting For Factory Overhead
Chapter 8 - Accounting For Factory Overhead
Chapter 8 - Accounting For Factory Overhead
Volume
Variable Fixed
Cost Cost
Volume Volume
Divide by Expected actual capacity 10,000 widgets (40 X 10,000) (60 X 10,000) (60/24 X 10,000) (20/60 X 10,000)
/Widget of Material Cost of Direct labor cost /Direct Labor Hour /Machine Hour
Plant-wide
Using Problem 1 and instead of using expected actual
capacity the company uses the normal capacity…
Physical Output Materials Cost Direct Labor Cost Direct Labor Hours Machine Hours
Divide by Expected actual capacity 12,500 widgets (40 X 12,500) (60 X 12,500) (60/24 X 12,500) (20/60 X 12,500)
/Widget of Material Cost of Direct labor cost /Direct Labor Hour /Machine Hour
20A:
Actual Factory Overhead 145,000
Applied Factory Overhead (10,000 x P15) 150,000
Overapplied Factory Overhead -5,000
20B:
Actual Factory Overhead 205,000
Applied Factory Overhead (11,000 x P18) 198,000
Underapplied Factory Overhead 7,000
Discussion Problem
Departmentalize Factory Overhead Rates
Ferry Company has three service departments, Purchasing, Bldg Maintenance and Human Resources, and two producing departments, Machining and Assembly. The following data have been
estimated for next year’s operations:
Department: Total OH Charges Square Footage Machine Hours Estimated Labor Hours No. of Employees
Acquisitions
Purchasing 85,000 200 -- 50,000 -- 3
Human Resources 135,000 300 -- 75,000 -- 5
Bldg Maintenance 100,000 100 -- 35,000 5,000 2
Machining 275,000 1,800 25,000 1,785,000 20,000 15
Assembly 225,000 2,700 1,000 2,105,000 25,000 30
Ferry’s applies overhead to the production using machine hours for Machining and labor hours for assembly.
Required:
Compute for the Factory Overhead Rate, assuming the company allocates service department costs using:
1. Direct Method
2. Step Method
3. Algebraic Method
Practice problem...
Departmentalize Factory Overhead Rate Direct Method
Chaing Chemical Co. operates with three producing departments Blending, Testing, and Terminal. The overhead items and
amounts for the period, along with the bases for their allocation, are listed below.
Item Amount Allocation Basis
Building depreciation P 24,000 Square footage
Janitorial cost 33,000 Square footage
Materials receiving cost 48,000 Materials usage
Payroll Department cost 126,000 Number of employees
Power 75,000 Horsepower of equipment
Other relevant data are:
Blending Testing Terminal
Department Department Department Total
Number of employees 25 40 19 84
Direct labor hours 62,000 104,000 54,000 220,000
Horsepower of equipment 60,000 15,000 5,000 80,000
Kilowatt-hours 4,000 1,000 6,000 11,000
Square footage 2,000 2,000 2,000 6,000
Directly chargeable overhead cost P 125,000 P 75,000 P 87,500 P 287,500
Direct materials P 75,000 P 25,000 P 100,000
Practice problem...
Departmentalize Factory Overhead Rate Step Method
Granny's Nut Co. operates with three producing departments (Cutting, Dividing, and Shelling that are serviced by two service
departments Equipment Maintenance and General Plant). Costs are allocated using the step method with the service
department servicing the greatest number of other departments allocated first. General Plant is allocated on the basis of
square footage and Equipment Maintenance is allocated on the basis of direct labor hours. Relevant May data are:
Producing Departments
Service Departments
Equipment
General
Cutting Dividing Shelling Maintenance
Plant
Overhead before allocation of service
department costs P105,000 P93,000 P87,000 P56,000 P30,000
Square footage 8,000 12,000 6,000 4,000 -
Machine hours used 6,000 2,000 7,000 - -
Direct labor used 5,000 6,000 9,000 - -
Required: Prepare a schedule indicating the allocation of service department costs to producing departments and the rate per
machine hour for applying overhead in each producing department.
Practice problem...
Departmentalize Factory Overhead Rate Algebraic Method
Orleans Corp. operates two producing departments, C and D, and two service departments, E and F. The
overhead before allocation of service department costs, together with the usage of services from the service
departments, is:
Overhead Before
Allocation of Service Services Provided by
Department Department Costs E F
Producing:
C P18,000 30% ‑-
D 29,000 30% 80%
Service:
E 8,000 -‑ 20%
F 1,400 40% ‑-
P56,400
Required: Prepare the overhead distribution, using the simultaneous method to allocate the service departments'
costs to the producing departments.