1

CHAPTER 7

Multiple Choice Questions Theoretical

1. c 5. b 9. a
2. b 6. c 10. c
3. b 7. a 11 a
4. b 8. d 12. C

Multiple Choice Questions 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 = P27,000 + .20 S2
= P27,000 + .20 (P18,000 + .10 S1)
= P27,000 + P3,600 + .02 S1
.98S1 = P30,600
S1 = P31,224

S2 = P18,000 + .10 (P31,224)

= P18,000 + P3,122
= P21,122

Total service cost allocated to P2: (40% x 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 and
utilities department provides service to the other service 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 interactive 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 = Maintenance Departments total cost

E = Engineering Departments total cost
M = P12,000 + .20E
E = P54,000 + .25M
E = P54,000 + .25 (P12,000 + .20 E)
E = P54,000 + P3,000 + .05E
.95E = P57,000
E = P60,000

11. (a)

Out of the total Engineering Departments 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 = P12,000 + .20E
E = P54,000 + .25M
M = P12,000 + .20 (P54,000 + .25M)
M = P12,000 + P10,800 = .05M
.95M = P22,800
M = P24,000

Or:

E = P60,00
M = P12,000 + .20E
M = P12,000 + P12,000
M = P24,000
 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 departments 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 = P 6,000

Engineering costs: (800 / 1,600) x (P54,000 + P3,000) = 28,500
Total allocated to Department A P34,500

22. (d)

Total Factory Maintenance Cost x Fabrication Square footage occupied

Total Square Footage

P82,100 + P65,000 + P56,100 x 88,000 = P111,760

88,000 + 72,000
 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 x No. of employee of

Total employee Factory Maintenance

P87,000 + P91,000 + P62,000 x 8 = P3,840

280 + 200 + 12 + 8

25. (b)

Factory Cafeteria cost P240,000

Factory Maintenance cost P203,300

Factory Cafeteria cost already closed out.

26. (b)

Pesos of Assets No. of

Employed % Employees %
Advertising P 762,400 29 12 32
Circulation 1,870,300 71 25 68
P2,632,700 37

Advertising Circulaton
Administration:
P781,500 x .29 P226,635
P781,500 x .71 P554,865
Human Resources:
P492,700 x .32 157,664
P492,700 x .68 335,036
Total P384,299 P889,901

Advertising: P 957,800 + P384,299 = P1,342,099

Circulation: P1,352,600 + P889,901 = 2,242,501
P3,584,600
27. (a)

Administration (P781,500):
Base % Allocation
Human Resources P 291,700 10 P781,500
Advertising 762,400 26 203,190
Circulation 1,870,300 64 500,160
P2,924,400 P781,500
 5

Question 27, (continued)

Human Resources (P492,700 + P78,150 = P570,850):

Base % Allocation
Advertising 12 32 P182,672
Circulation 25 68 388,178
37 P570,850

Advertising: P 957,800 + P203,190 + P182,672 = P1,343,662

Circulation: P1,352,600 + P500,160 + P388,178 = 2,240,938
P3,584,600

28, (a)

Administration H. Resources
Base % Base %
Administration (A) n/a n/a 10 21
Human Resources (H) P 291,700 10 n/a n/a
Advertising 762,400 26 12 26
Circulation 1,870,300 64 25 53
P2,924,400 47

Equation:
A = P781,500 + .21 H
H = P492,700 + .10 A

A = P781,500 + .21 (P492,700 + .10 A)

A = P781,500 + P103,467 + .021 A
.979A = P884,967
A = P903,950

H = P492,700 + .10 (P903,950)

H = P492,700 + P90,395
H = P583,095

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

Administration H. Resource Advertising Circulation

Direct costs P781,500 P492,700 P 957,800 P1,352,600
Administration (903,950) 90,395 235,027 578,528
H. Resources 122,450 (583,095) 151,605 309,040
P 0 P 0 P1,344,432 P2,240,168
 6

29. (b)

Administration Editorial
Department Base % Base %
Administration (A) n/a n/a 10 10
Editorial (E) P 144,000 6 n/a n/a
College Texts 1,200,000 50 55 55
Prof. Pubs. 1,056,000 44 35 35
Total P2,400,000 100 100 100

Equation:
A = P450,000 + 0.10E
E = P350,000 + 0.06A

A = P450,000 + 0.10 (P350,000 + 0.06A)

A = P450,000 + P35,000 + 0.006A
0.994A = P485,000
A = P487,928

E = P350,000 + 0.06 (P487,928)

E = P350,000 + P29,276
E = P379,276

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

College
Department Administration Editorial Texts Prof. Pubs.
Direct costs P450,000 P350,000 P2,250,000 P 950,000
Administration (487,928) 29,276 243,964 214,688
Editorial 37,928 (379,276) 208,602 132,746
Total P 0 P 0 P2,702,566 P1,297,434

30. (a) See above computations

 7

Solutions to Problems

Problem 7-1

(a) DL Hours % Square Footage %

Machinery 2,000 55.56 1,900 37.25
Assembly 1,600 44.44 3,200 62.75
3,600 100.00 5,100 100.00

Allocation:
Machinery Assembly
Factory Administration:
P129,000 x 55.56% P7 1,672
P129,000 x 44.44% P 57,328
Building and grounds:
P105,000 x 37.25% 39,113
P105,000 x 62.75% 65,888
Total P110,785 P123,216

Total costs after allocation:

Machinery: P416,000 + P110,785 = P526,785
Assembly: P380,000 + P123,216 = 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):

Base % Allocation
Building and Grounds 1,100 23.41 P 30,199
Machinery 2,000 42.55 54,890
Assembly 1,600 34.04 43,911
Total 4,700 100.00 P129,000

Building and grounds (P105,000 + P30,199 = P135,199):

Base % Allocation
Machinery 1,900 37.25 P 50,362
Assembly 3,200 62.75 84,837
Total 5,100 100.00 P135,199

Total costs after allocation:

Machinery: P416,000 + P54,890 + P50,362 = P521,252
Assembly: P380,000 + P43.911 + P84,837 = 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 Building and
Adm. % Grounds %
Factory adm. (F) n/a n/a 1,200 .19
Building grounds (B) 1,100 .23 n/a n/a
Machinery 2,000 .43 1,900 .30
Assembly 1,600 .34 3,200 .51

Equation:
F = P129,000 + .19B
B = P105,000 + .23F

F = P129,000 + .19 (P105,000 + .23F)

F = P129,000 + P19,950 + .0437F
.9563F = P148,950
F = P155,757

B = P105,000 + .23(P155,757)
B = P105,000 + P35,824
B = P140,824

Cost Allocations:
Factory Administration allocations:
Building and grounds: P155,757 x .23 = P35,824
Machinery: P155,757 x .43 = P66,976
Assembly: P155,757 x .34 = P52,957

Building and Grounds allocations:

Factory administration: P140,824 x .19 = P26,757
Machinery: P140,824 x .30 = P42,247
Assembly: P140,824 x .51 = P71,820

Total cost after allocations:

Building &
F. Admin. Grounds Machinery Assembly
Direct cost P129,000 P105,000 P416,000 P380,000
F. Administration (155,757) 35,824 66,976 52,957
Bldg. and Grounds 26,757 (140,824) 42,247 71,820
Total P 0 P 0 P525,223 P504,777
F/O rates P17.51 P22.14

Problem 7-2

(a) Machinery Assembly Packaging

Maintenance:
P250,000 x .32/.86 P 93,023
P250,000 x .26/.86 P 75,581
P250,000 x .28/.86 P 81,395
Storeroom:
P180,000 x .26 46,800
P180,000 x .44 79,200
P180,000 x .30 54.000
Total P139,823 P154,781 P135,395
 9

Problem 7-2 (continued):

Machinery Assembly Packaging
Direct Cost P 600,000 P 892,000 P 436,000
Service dept. allocated cost 139,823 154,781 135,395
Total cost after allocation P 739,823 P1,046,781 P 571,395

Factory overhead rates P36.99 P29.08 P31.74

(b) Maintenance (P250,000):

Storeroom: P250,000 x .14 = P35,000

Machinery: P250,000 x .32 = 80,000
Assembly: P250,000 x .26 = 65,000
Packaging: P250,000 x .28 = 70,000

Storeroom (P180,000 + P35,000 = P215,000)

Machinery: P215,000 x .26 = P55,900

Assembly: P215,000 x .44 = 94,600
Packaging: P215,000 x .30 = 64,500

Machinery Assembly Packaging

Direct cost P 600,000 P 892,000 P 436,000
Maintenance cost 80,000 65,000 70,000
Storeroom cost 55,900 94,600 64,500
Total cost P 735,900 P1,051,600 P 570,500

Factory overhead rates P36.80 P29.21 P31.69

(c)
Maintenance Storeroom
Base % Base %
Maintenance (M) n/a 400 0.03
Storeroom (S) .14 n/a n/a
Machinery .32 3,500 0.25
Assembly .26 6,000 0.43
Packaging .28 4,100 0.29
14,000

Equation:
M = P250,000 + .03S
S = P180,000 + .14M

M = P250,000 + .03 (P180,000 + .14M)

M = P250,000 + 5,400 + .0042M
.9958M = P255,400
M = P256,477

S = P180,000 + .14M
S = P180,000 + .14 (P256,477)
S = P180,000 + P35,907
S = P215,907
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Problem 7-2 (continued)

Maintenance allocations:
Storeroom: P256,477 x .14 = P 35,907
Machinery: P256,477 x .32 = P 82,073
Assembly: P256,477 x .26 = P 66,684
Packaging: P256,477 x .28 = P 71,813

Storeroom allocations:
Maintenance: P215,907 x .03 = P 6,477
Machinery: P215,907 x .25 = P 53,977
Assembly: P215,907 x .43 = P 92,840
Packaging: P215,907 x .29 = P 62,613

Total cost after allocations:

Maintenance Storeroom Machinery Assembly Packaging

Direct cost P 250,000 P 180,000 P 600,000 P 892,000 P 436,000
Maintenance (256,477) 35,907 82,073 66,684 71,813
Storeroom 6,477 (215,907) 53,977 92,840 62,613
Total cost P 0 P 0 P 736.050 P1,051,524 P 570,426

F/O Rates P36.80 P29.21 P31.69

Problem 7-3

1. Producing Departments
A B
Budgeted manufacturing overhead P820,000 P608,000
Service Department X to:
A (180/600 x P200,000) 60,000
B (420/600 x P200,000) 140,000
Service Department Y to:
A (128/160 x P100,000) 80,000
B ( 32/160 x P100,000) 20,000
Total P960,000 P768,000

Predetermined manufacturing overhead rates:

Department A: P960,000 / 128,000 machine hours = P7.50 per machine hour
Department B: P768,000 / 200,000 DL hours = P3,84 per DLH

Overhead cost of Job 155:

Dept. A: 60 x P7.50 = P450
Dept. B: 40 x P3.84 = 154
Total cost P604

2. Total budgeted factory overhead P1,728,000

Divided by total direct labor hours 270,000
Plant-wide overhead rate P 6.40

Cost of Job 155: 60 x P6.40 = P384

 11

Problem 7-4

Assembly Finishing
Factory overhead budget P1,040,000 P 800,000
Allocation of Service Departments cost:
Maintenance: P400,000, 42:18 280,000 120,000
Administration: P300,000, 30:20 180,000 120,000
Total budgeted factory overhead P1,500,000 P1,040,000
Divided by machine hours 50,000 40,000
Factory overhead rates P 30/hour P 26/hour

Problem 7-5

1. S1 (P20,000):
Base % Allocation
S2 20 .025 P 500
P1 360 .45 9,000
P2 420 .525 10,500
800 P20,000
S2 (P69,500 + P500 = P70,000):
Base % Allocation
P1 8,000 .57 P40,000*
P2 6,000 .43 30,000*
14,000 P70,000
*rounded

P1 P2
Budgeted factory overhead P400,000 P600,000
S1 cost 9,000 10,500
S2 cost 40,000 30,000
Total cost P449,000 P640,500
Divided by 8,000 20,000
Predetermined overhead rates P 56.125 P 32.025

2. P1,089,000 / 30,000 DLH = P36.317 per DLH

3. 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. Equation 1: C = P40,000 + .20D

Equation 2: D = P40,000 + .20C
Equation 3: E = P20,000 + .30C + .10D

Substitution:
C = P40,000 + .20 (P40,000 + .20C)
C = P40,000 + P8,000 + .04C
.96C = P48,000
C = P50,000

D = P40,000 + .20 (P50,000)

D = P40,000 + P10,000
D = P50,000

E = P20,000 + .30 (P50,000) + .10 (P50,000)

E = P20,000 + P15,000 + 5,000
E = P40,000

2. Service C allocation:
Service D: P50,000 x .20 = P10,000
Service E: P50,000 x .30 = P15,000
Producing B: P50,000 x .50 = P25,000

Service D allocation:
Service C: P50,000 x .20 = P10,000
Service E: P50,000 x .10 = P 5,000
Producing A: P50,000 x .30 = P15,000
Producing B: P50,000 x .40 = P20,000

Service E allocation:
Producing A: P40,000 x .40 = P16,000
Producing B: P40,000 x .30 = P12,000
Marketing: P40,000 x .20 = P 8,000
General office: P40,000 x .10 = 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
Marketing = 8,000
General Office = 4,000
Total P400,000
 13

Problem 7-7

1. Producing Department
P1 P2
Factory overhead P 40,000 P47,600
Allocation of Service Department:
S1: P14,400; ( 40% : 50%) 6,400 8,000
S2: P18,000 ; ( 20% : 40%) 6,000 12,000
Total P120,000 P52,400

2. S2 allocation (P18,000):
P1: P18,000 x 20% = P 3,600
P2: P18,000 x 40% = 7,200
S1: P18,000 x 40% = 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:

P1: P40,000 + P3,600 + P 9,600 = P 53,200
P2: P47,600 + P7,200 + P12,000 = 66,800
Total P120,000

3. S1 = P14,400 + .40 S2
S2 = P18,000 + .10 S1

Substitution:
S1 = P14,400 + .40 (P18,000 + .10 S1)
S1 = P14,400 + P7,200 + .04 S1
.96S1 = P21,600
S1 = P22,500

S2 = P18,000 + .10 (P22,500)

S2 = P18,000 + P2,250
S2 = P20,250

S1 allocations:
S2: P22,500 x .10 = P2,250
P1: P22,500 x .40 = P9,000
P2: P22,500 x .50 = P11,250

S2 allocations:
S1: P20,250 x .40 = P8,100
P1: P20,250 x .20 = P4,050
P2: P20,250 x .40 = P8,100

Total manufacturing overhead after allocation:

P1: P40,000 + P 9,000 + P4,050 = P 53,050
P2: P47,600 + P11,250 + P8,100 = 66,950
Total P120,000
 14

Problem 7-8

a. Administration Costs (P750,000):

Base Allocation
Accounting 5/146 P 25,685
Promotion 6/146 30,822
Commercial 21/146 107,877
Residential 101/146 518,835
Prop. Mgmt. 13/146 66,781
Total (rounded) P750,000

Accounting Costs (P495,000 + P25,685 = P520,685)

Base Allocation
Promotion P360,000 / P1,760,000 P106,504
Commercial P500,000 / P1,760,000 147,922
Residential P725,000 / P1,760,000 214,487
Prop. Mgmt. P175,000 / P1,760,000 51,772
Total (rounded) P520,685

Promotion (P360,000 + P30,822 + P106,504 = P497,326)

Base Allocation
Commercial P4,500,000 / P14,500,000 P154,343
Residential P9,500,000 / P14,500,000 325,834
Prop. Mgmt. P 500,000 / P14,500,000 17,149
Total P497,326

Summary of allocation:
Commercial: P107,877 + P147,922 + P154,343 = P 410,142
Residential: P518,835 + P214,487 + P325,834 = P1,0549,156
Prop. Mgmt: P 66,781 + P 51,772 + P 17,149 = P 135.702

b. Commercial Residential Prop. Mgmt.

Revenues P 4,500,000 P 9,500,000 P 500,000
Direct costs (5,245,000) (4,589,510) (199,200)
Allocated costs (410,142) (1,059,156) (135,702)
Income (loss) P(1,155,142) P 3,851,334 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 = 1,220 + 650 + 190 = P2,060

Transfer price revenue = 2,060 x P40 = P82,400

Actual Variable EDP Costs = P90,640 = P44 transfer price

Total EDP Hours Used 2,060

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.

Lit FP LC Total
Administration (P450,000), 10:5:3 P250,000 P125,000 P 75,000 P 450,000
EDP-Fixed (P300,000), 80:345:240:25 69,565 208,696 21,739 300,000
Total allocated P319,565 P333,696 P 96,739 P 750,000
Transfer costs 48,800 26,000 7,600 82,400
Direct costs 200,000 255,000 340,000 795,000

Total P568,365 P614,696 P444,339 P1,627,400

Problem 7-10

a. SD1 Costs (P1,065,000):

Base % Cost Allocation
SD2 20/400 0.050 x P1,065,000 = P 53,250
SD3 30/400 0.075 x P1,065,000 = 79,875
PD1 200/400 0.500 x P1,065,000 = 532,500
PD2 150/400 0.375 x P1,065,000 = 399,375
P1,065,000
SD2 Costs (P840,000 + P53,250 = P893,250):
Base % Cost Allocation
SD3 200/2,000 0.10 x P893,250 = P 89,325
PD1 800/2,000 0.40 x P893,250 = 357,300
PD2 1,000/2,000 0.50 x P893,250 = 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 Floor # of
Employees % Space % Hours %
PD1 200 0.57 800 0.44 68 0.40
PD2 150 0.43 1,000 0.56 102 0.60
350 1,800 170

PD1 PD2
SD1: P1,065,000 x 0.57 P 607,050
P1,065,000 x 0.43 P 457,950
SD2: P840,000 x 0.44 369,600
P840,000 x 9.56 470,400
SD3: P1,185,000 x 0.40 474,000
P1,185,000 x 0.60 711,000
Total P1,450,650 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. SD1 SD2 SD3

Department Base % Base % Base %
SD1 n/a n/a 400 0.167 15 0.073
SD2 20 0.050 n/a n/a 20 0.098
SD3 30 0.075 200 0.083 n/a n/a
PD1 200 0.500 800 0.333 68 0.332
PD2 150 0.375 1,000 0.417 102 0.497
400 2,400 205

Equations:
SD1 = P1,065,000 + .167 SD2 + 0.73 SD3
SD2 = P 840,000 + .05 SD1 + 0.98 SD3
SD3 = P1,185,000 + .075 SD1 + 0.83 SD2

SD1 = P1,065,000 + .167 (P840,000 + .05SD1 + .098 SD3) + .073SD3

SD1 = P1,065,000 + P140,280 + .008SD1 + .016SD3 + .073SD3
.992SD1 = P1,205,280 + .89SD3
SD1 = P1,215,000 + .09SD3

SD3 = P1,185,000 + .075SD1 + .83 (P840,000 + .05SD1 + .098SD3)

SD3 = P1,185,000 + .075SD1 + P69,720 + .004SD1 + .008SD3
.992SD3 = P1,254,720 + .079SD1
SD3 = P1,264,839 + .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 x 0.050 = P66,910
SD3: P1,338,202 x 0.075 + P100,365
PD1: P1,338,202 x 0.500 = P669,101
PD2: P1,338,202 x 0.375 = P501,826

SD2 allocations:
SD1: P1,041,356 x 0.167 = P173,906
SD3: P1,041,356 x 0.083 = P86,433
PD1: P1,041,356 x 0.333 = P346,772
PD2: P1,041,356 x 0.417 = P434,245

SD3 allocations:
SD1: P1,371,896 x 0.073 = P100,149
SD2: P1,371,896 x 0.098 = P134,446
PD1: P1,371,896 x 0.332 = P455,469
PD2: P1,371,896 x 0.497 = P681,832

SD1 SD2 SD3 PD1 PD2

Direct costs P1,065,000 P 840,000 P 1,186,000 P3,760,000 P3,600,000
SD1 (1,338,202) 66,910 100,365 669,101 501,826
SD2 173,906 (1,041,356) 86,433 346,772 434,245
SD3 100,149 134,446 (1,371,896) 455,469 681,832
P 0 P 0 P 0 P5,231,342 P5,217,903

Note: SD1, SD2, and SD3 columns are off due to rounding.

Factory overhead rates:

PD1: P5,231,341 / 400,000 = P13.08 or P13 per DLH
PD2: P5,217,903 / 300,000 = 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 Sq. Feet Percent Allocation

Storeroom 2,400 15 P 1,851
Cutting 5,600 35 4,318
Assembly 4,800 30 3,701
Finishing 3,200 20 2,467
Totals 16,000 100 P12,337

Storeroom Costs (PP8,510 + P1,851 = P10,361):

Department DLH Percent Allocation

Cutting 3,600 40 P 4,145
Assembly 2,300 25 2,590
Finishing 3,220 35 3,626
Totals 9,200 100 P10,361

Allocation of Service Department Costs to Producing Depatment

Gen. Fcty Storeroom Cutting Assembly Finishing

Direct Cost P 12,337 P 8,510 P10,192 P 8,111 P 8,796
General Factory (12,337) 1,851 4,318 3,701 2,467
Storeroom (10,361) 4,145 2,590 3,627
Totals P 0 P 0 P18,655 P14,402 P14,889

2. 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 47,946
To close control account and record department costs

Manufacturing overhead Cutting Dept. 4,318

Manufacturing overhead Assembly Dept. 3,701
Manufacturing overhead Finishing Dept. 2,467
Manufacturing overhead Storeroom Dept. 1,851
Manufacturing overhead Gen Fcty 12,337
To allocate General Factory Dept. costs

Manufacturing overhead Cutting Dept. 4,145

Manufacturing overhead Assembly Dept. 2,590
Manufacturing overhead Finishing Dept. 3,626
Manufacturing overhead Storeroom 10,361
To allocation storeroom costs.