CHAPTER 7.pdf

1

CHAPTER 7 Multiple Choice Questions  –  Theoretical  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  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 S2

= = = = =

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

= = =

P18,000 + .10 (P31,224) P18,000 + P3,122 P21,122

Total service service cost allocated allocated to P2: (40% x P31,224) 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 maintenance and utilities department department provides service service to the other service service department. 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 i nteractive 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 Department’s total cost Engineering Department’s 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 Department’s 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

3

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 department’s 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

x

DLH of Assembly

Total Direct Labor Hours P90,000 + P70,000

x

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

x

No. of employee of Factory Maintenance

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

% 29 71

No. of Employees 12 25 37

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 65,888 P123,216

P110,785

Total costs after allocation: Machinery: P416,000 + P110,785 Assembly: P380,000 + 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

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

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

F/O Rates

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

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 Department’s 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 8,000 Marketing = 4,000 General Office = P400,000 Total

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: P 53,200 P1: P40,000 + P3,600 + P 9,600 = 66,800 P2: P47,600 + P7,200 + P12,000 = P120,000 Total 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: P 53,050 P1: P40,000 + P 9,000 + P4,050 = 66,950 P2: P47,600 + P11,250 + P8,100 = P120,000 Total

8,000 12,000 P52,400

14

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

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 % SD3 200/2,000 0.10 x PD1 800/2,000 0.40 x PD2 1,000/2,000 0.50 x

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

Cost P893,250 = P893,250 = P893,250 =

= = = =

Allocation P 53,250 79,875 532,500 399,375 P1,065,000 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 % 200 0.57 150 0.43 350

PD1 PD2

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

E quations: 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 P1,065,000

SD1

(1,338,202)

SD2 SD3

173,906 100,149 0

P

P

SD2 840,000

SD3 P 1,186,000

66,910

100,365

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

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

PD1 P3,760,000

669,101 346,772 455,469 P5,231,342

PD2 P3,600,000

501,826 434,245 681,832 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

Percent 15 35 30 20 100

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

0

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