Cost Accounting 7 & 8

PROBLEMS Problem 1 The Denmark Company estimates its factory overhead for the next period at 500, 000. It is estimated that 10, 000 units will be produced at a materials cost of 400, 000 and will require 25, 000 direct labor hours at an estimated cost of 250, 000. The machines will run about 80, 000 hours. Required: The predetermined factory overhead rate based on: 1. Material cost 2. Units of production 3. Machine hours 4. Direct labor cost 5. Direct labor hours Answer: 1. 500 000/400 000 x 100 = 125% of direct materials cost 2. 500 000/10 000 = 50/unit 3. 500 000/80 000 = 6.25/machine hours 4. 500 000/250 000 x 100 = 2% of direct labor cost 5. 500 000/25 000= 20/direct labor hours Problem 2 The Marco Company budgeted overhead at P 255, 000 for the period for Department A, on the basis of a budgeted volume of P 100, 000 direct labor hours. At the end of the period, the Factory Overhead Control account for Department A had a balance of P 270, 000; actual direct labor hours were P 105, 000 Required: 1. Compute for the overhead application rate 2. Compute for the applied factory overhead 3. Compute for the over or under-applied overhead Answer: Problem 3 Marvin Company’s estimated factory overhead for the year was P 456, 120 and the actual overhead was P 470, 800. Machine hours were used in determining the factory overhead application rate. There were

P 84, 500 actual machines and P 81, 450 estimated machine hours during the year. Required: A. Prepare journal entries to record the following 1. The applied factory overhead 2. The actual factory overhead 3. The closing of the applied overhead account and actual factory account. B. Assume the following amounts of applied factory overhead in each account. Cost of goods sold 350 000 Finished goods inventory-end 100 000 Work in process inventory-end 23 200 Allocate the over or under-applied factory overhead to these three accounts. Answer: Problem 4 The Ellery Corporation uses the job order cost system of accounting. Shown below is a list of the jobs completed during the month of March showing the charges for materials requisitioned and for direct labor cost. Job Material Cost Direct Labor 123 300 600 124 1 080 940 125 720 1 400 126 4 200 5 120 Required: Assuming that factory overhead is applied on the basis of direct labor costs and that the predetermined rate is 180% compute: 1. The amount of overhead to be added to the cost of each job completed 2. The total cost of each job completed during the month.