Essay

82. Ingersol Draperies makes custom draperies for homes and

Hard businesses. The company uses an activity-based costing system
for its overhead costs. The company has provided the following
data concerning its annual overhead costs and its activity cost
pools.

Overhead costs:
Production overhead .. P120,000
Office expense ....... P120,000
Total .............. P240,000

Distribution of resource consumption:

Activity Cost Pools

Making Job
Drapes Support Other Total
Production overhead .. 35% 45% 20% 100%
Office expense ....... 5% 65% 30% 100%

The "Other" activity cost pool consists of the costs of

idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:

Activity Cost Pool Annual Activity

Making drapes ....... 2,000 yards
Job support ......... 160 jobs
Other ............... Not applicable

Required:

a. Prepare the first-stage allocation of overhead costs to the

activity cost pools by filling in the table below:

Making Job
Drapes Support Other Total
Production overhead ..
Office expense .......
Total ..............

b. Compute the activity rates (i.e., cost per unit of activity)

for the Making Drapes and Job Support activity cost pools by
filling in the table below:

Making Job
Drapes Support
Production overhead ..
Office expense .......
Total ..............
c. Prepare an action analysis report in good form of a job that
involves making 71 yards of drapes and has direct materials
and direct labor cost of P2,510. The sales revenue from this
job is P4,400.

For purposes of this action analysis report, direct

materials and direct labor should be classified as a Green
cost; production overhead as a Red cost; and office expense
as a Yellow cost.

Answer:
a. First-stage allocation
Making Job
Drapes Support Other Total
Production overhead .. P42,000 P54,000 P24,000 P120,000
Office expense ....... P6,000 P78,000 P36,000 P120,000
Total .............. P48,000 P132,000 P60,000 P240,000

Activity ............. 2,000 160

yards jobs

b. Activity rates (costs divided by activity)

Production overhead .. P21.00 P337.50
Office expense ....... P3.00 P487.50
Total .............. P24.00 P825.00

c.
Overhead cost of the job.
Making Job
Drapes Support Total
Activity ............ 71 1

Production overhead . P1,491.00 P337.50 P1,828.50

Office expense ...... P213.00 P487.50 P700.50
Total ............. P1,704.00 P825.00 P2,529.00

Revenue ......................... P4,400.00

Green costs:
Direct materials and labor ... P2,510.00
Green margin .................... P1,890.00
Yellow costs:
Office expense ............... P700.50
Yellow margin ................... P1,190.50
Red costs:
Production overhead .......... P1,828.50
Red margin ...................... (P638.00)
83. Hasty Hardwood Floors installs oak and other hardwood floors in
Medium homes and businesses. The company uses an activity-based
costing system for its overhead costs. The company has provided
the following data concerning its annual overhead costs and its
activity based costing system:
Overhead costs:
Production overhead .. P190,000
Office expense ....... P140,000
Total .............. P330,000

Distribution of resource consumption:

Activity Cost Pools
Installing Job
Floors Support Other Total
Production overhead .. 40% 40% 20% 100%
Office expense ....... 10% 60% 30% 100%

The "Other" activity cost pool consists of the costs of

idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool Annual Activity
Installing floors ... 200 squares
Job support ......... 160 jobs
Other ............... Not applicable

A "square" is a measure of area that is roughly equivalent to

1,000 square feet.

Required:

a. Prepare the first-stage allocation of overhead costs to the

activity cost pools by filling in the table below:
Installing Job
Floors Support Other Total
Production overhead ..
Office expense .......
Total ..............

b. Compute the activity rates (i.e., cost per unit of activity)

for the Installing Floors and Job Support activity cost
pools by filling in the table below:

Installing Job
Floors Support
Production overhead ..
Office expense .......
Total ..............
 Answer:
a. First-stage allocation
Installing Job
Floors Support Other Total
Production overhead P76,000 P76,000 P38,000 P190,000
Office expense ..... P14,000 P84,000 P42,000 P140,000
Total ............ P90,000 P160,000 P80,000 P330,000

Activity ........... 200 160

squares jobs

b. Activity rates (costs divided by activity)

Production overhead .. P380 P475
Office expense ....... P70 P525
Total .............. P450 P1,000

c. Overhead cost of the job.

Installing Job
Floors Support Total
Activity ........... 3.4 1

Production overhead .. P1,292 P475 P1,767

Office expense ....... P238 P525 P763
Total .............. P1,530 P1,000 P2,530

84. Goel Company, a wholesale distributor, uses activity-based

Medium costing for its overhead costs. The company has provided the
following data concerning its annual overhead costs and its
activity based costing system:

Overhead costs:
Wages and salaries .. P460,000
Nonwage expenses .... P120,000
Total ............. P580,000

Distribution of resource consumption:

Activity Cost Pools
Filling Product
Orders Support Other Total
Wages and salaries .. 15% 75% 10% 100%
Nonwage expenses .... 10% 70% 20% 100%

The "Other" activity cost pool consists of the costs of

idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:

Activity Cost Pool Annual Activity

Filling orders ...... 4,000 orders
Product support ..... 30 products
Other ............... Not applicable
 Required:

Compute the activity rates (i.e., cost per unit of activity)

for the Filling Orders and Product Support activity cost pools
by filling in the table below:

Filling Product
Orders Support
Wages and salaries ..
Nonwage expenses ....
Total .............

Answer:
First-stage allocation
Filling Product
Orders Support Other Total
Wages and salaries . P69,000 P345,000 P46,000 P460,000
Nonwage expenses ... P12,000 P84,000 P24,000 P120,000
Total ............ P81,000 P429,000 P70,000 P580,000

Activity ........... 4,000 30

orders products

Activity rates (costs divided by activity)

Wages and salaries.. P17.25 P11,500
Nonwage expenses.... P3.00 P2,800
Total............. P20.25 P14,300

85. Fife & Jones PLC, a consulting firm, uses an activity-based

Medium costing in which there are three activity cost pools. The
company has provided the following data concerning its costs
and its activity based costing system:

Costs:
Wages and salaries ... P540,000
Travel expenses ...... P100,000
Other expenses ....... P140,000
Total .............. P780,000

Distribution of resource consumption:

Activity Cost Pools

Working On Business
Engagements Development Other Total
Wages and salaries 50% 20% 30% 100%
Travel expenses ... 60% 30% 10% 100%
Other expenses .... 35% 25% 40% 100%
 Required:

a. How much cost, in total, would be allocated to the Working

On Engagements activity cost pool?
b. How much cost, in total, would be allocated to the Business
Development activity cost pool?
c. How much cost, in total, would be allocated to the Other
activity cost pool?

Answer:
All three parts can be answered using a first-stage allocation of
costs.
Working On Business
Engagements Development Other Total
Wages and salaries P270,000 P108,000 P162,000 540,000
Travel expenses .. P60,000 P30,000 P10,000 P100,000
Other expenses ... P49,000 P35,000 P56,000 P140,000
Total .......... P379,000 P173,000 P228,000 P780,000

a. P379,000
b. P173,000
c. P228,000

86. Huish Awnings makes custom awnings for homes and businesses.
Hard The company uses an activity-based costing system for its
overhead costs. The company has provided the following data
concerning its annual overhead costs and its activity cost
pools:

Overhead costs:
Production overhead .. P150,000
Office expense ....... P100,000
Total .............. P250,000

Distribution of resource consumption:

Activity Cost Pools

Making Job
Awnings Support Other Total
Production overhead .. 45% 40% 15% 100%
Office expense ....... 8% 65% 27% 100%

The "Other" activity cost pool consists of the costs of

idle capacity and organization-sustaining costs.

The amount of activity for the year is as follows:

Activity Cost Pool Annual Activity

Making awnings ...... 5,000 yards
Job support ......... 200 jobs
Other ............... Not applicable
Required:

a. Prepare the first-stage allocation of overhead costs to the

activity cost pools by filling in the table below:

Making Job
Awnings Support Other Total
Production overhead ..
Office expense .......
Total ..............

b. Compute the activity rates (i.e., cost per unit of activity)

for the Making Awnings and Job Support activity cost pools
by filling in the table below:

Making Job
Awnings Support
Production overhead ..
Office expense .......
Total ..............

c. Prepare an action analysis report in good form of a job that

involves making 80 yards of awnings and has direct materials
and direct labor cost of P3,000. The sales revenue from this
job is P4,000.

For purposes of this action analysis report, direct

materials and direct labor should be classified as a Green
cost; production overhead as a Red cost; and office expense
as a Yellow cost.

Answer:
a. First-stage allocation
Making Job
Awnings Support Other Total
Production overhead.. P67,500 P60,000 P22,500 P150,000
Office expense....... P 8,000 P65,000 P27,000 P100,000
Total.............. P75,500 P125,000 P49,500 P250,000

Activity ............ 5,000 200

yards jobs

b. Activity rates (costs divided by activity)

Production overhead . P13.50 P300.00
Office expense ...... P 1.60 P325.00
Total ............. P15.10 P625.00
 c.
Overhead cost of the job.

Making Job
Awnings Support Total
Activity ............. 80 1

Production overhead .. P1,080.00 P300.00 P1,380.00

Office expense ....... P 128.00 P325.00 P 453.00
Total .............. P1,208.00 P625.00 P1,833.00

Revenue ......................... P4,000.00

Green costs:
Direct materials and labor ... P3,000.00
Green margin .................... P1,000.00
Yellow costs:
Office expense ............... P 453.00
Yellow margin ................... P 547.00
Red costs:
Production overhead .......... P1,380.00
Red margin ...................... P( 833.00)

87. Phoenix Company makes custom covers for air conditioning units
Hard for homes and businesses. The company uses an activity-based
costing system for its overhead costs. The company has provided
the following data concerning its annual overhead costs and its
activity cost pools:

Overhead costs:
Production overhead .. P100,000
Office expense ....... P 50,000
Total .............. P150,000

Distribution of resource consumption:

Activity Cost Pools

Making Job
Covers Support Other Total
Production overhead .. 40% 42% 18% 100%
Office expense ....... 12% 60% 28% 100%

The "Other" activity cost pool consists of the costs of

idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:

Activity Cost Pool Annual Activity

Making covers ....... 2,500 yards
Job support ......... 200 jobs
Other ............... Not applicable
Required:

a. Prepare the first-stage allocation of overhead costs to the

activity cost pools by filling in the table below:

Making Job
Covers Support Other Total
Production overhead ..
Office expense .......
Total ..............

b. Compute the activity rates (i.e., cost per unit of activity)

for the Making Covers and Job Support activity cost pools by
filling in the table below:

Making Job
Covers Support
Production overhead ..
Office expense .......
Total ..............

c. Prepare an action analysis report in good form of a job that

involves making 50 yards of covers and has direct materials
and direct labor cost of P1,500. The sales revenue from this
job is P2,500.

For purposes of this action analysis report, direct

materials and direct labor should be classified as a Green
cost; production overhead as a Red cost; and office expense
as a Yellow cost.

Answer:
a. First-stage allocation
Making Job
Covers Support Other Total
Production overhead .. P40,000 P42,000 P18,000 P100,000
Office expense ....... P 6,000 P30,000 P14,000 P 50,000
Total .............. P46,000 P72,000 P32,000 P150,000

Activity ............. 2,500 200

yards jobs

b. Activity rates (costs divided by activity)

Production overhead .. P16.00 P210.00
Office expense ....... P 2.40 P150.00
Total .............. P18.40 P360.00
 c.
Overhead cost of the job.

Making Job
Covers Support Total
Activity ............. 50 1

Production overhead .. P 800.00 P210.00 P1,010.00

Office expense ....... P 120.00 P150.00 P 270.00
Total .............. P 920.00 P360.00 P1,280.00

Revenue ......................... P2,500.00

Green costs:
Direct materials and labor ... P1,500.00
Green margin .................... P1,000.00
Yellow costs:
Office expense ............... P 270.00
Yellow margin ................... P 730.00
Red costs:
Production overhead .......... P1,010.00
Red margin ...................... (P 280.00)

88. Jackson Painting paints the interiors and exteriors of homes

Medium and commercial buildings. The company uses an activity-based
costing system for its overhead costs. The company has provided
the following data concerning its activity-based costing
system.

Activity Cost Pool Activity Measure Annual Activity

Painting overhead ... Square meters 10,000 square meters
Job support ......... Jobs 320 jobs
Other ............... None Not applicable

The "Other" activity cost pool consists of the costs of idle

capacity and organization-sustaining costs.
The company has already finished the first stage of the
allocation process in which costs were allocated to the
activity cost centers. The results are listed below:

Job
Painting Support Other Total
Painting overhead .. P54,000 P42,000 P24,000 P120,000
Office expense ..... P16,000 P96,000 P48,000 P160,000
Total ............ P70,000 P138,000 P72,000 P280,000
Required:

a. Compute the activity rates (i.e., cost per unit of activity)

for the Painting and Job Support activity cost pools by
filling in the table below. Round off all calculations to
the nearest whole cent.

Job
Painting Support
Painting overhead ....
Office expense .......
Total ..............

b. Prepare an action analysis report in good form of a job that

involves painting 63 square meters and has direct materials
and direct labor cost of P2,070. The sales revenue from this
job is P2,500.

For purposes of this action analysis report, direct

materials and direct labor should be classified as a Green
cost; painting overhead as a Red cost; and office expense as
a Yellow cost.

Answer:
a. Activity rates (costs divided by activity)
Job
Painting Support
Painting overhead .... P5.40 P131.25
Office expense ....... P1.60 P300.00
Total .............. P7.00 P431.25

b.
Overhead cost of the job.
Job
Painting Support Total
Activity ............. 63 1

Painting overhead .... P340.20 P131.25 P471.45

Office expense ....... P100.80 P300.00 P400.80
Total .............. P441.00 P431.25 P872.25

Sales ............................. P2,500.00

Green costs:
Direct materials and labor ... P2,070.00
Green margin .................... P430.00
Yellow costs:
Office expense ............... P400.80
Yellow margin ................... P29.20
Red costs:
Painting overhead ............ P471.45
Red margin ...................... (P442.25)
89. Cabanos Company manufactures two products, Product C and
Hard Product D. The company estimated it would incur P160,790 in
manufacturing overhead costs during the current period.
Overhead currently is applied to the products on the basis of
direct labor hours. Data concerning the current period’s
operations appear below:

Product C Product D
Estimated volume 3,400 units 4,800 units
Direct labor hours per unit 1.40 hour 1.90 hours
Direct materials cost per unit P 7.40 P12.70
Direct labor cost per unit P14.00 P19.00

Required:

a. Compute the predetermined overhead rate under the current

method, and determine the unit product cost of each product
for the current year.

b. The company is considering using an activity-based costing

system to compute unit product costs for external financial
reports instead of its traditional system based on direct
labor hours. The activity-based costing system would use
three activity cost pools. Data relating to these activities
for the current period are given below:

Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product C Product D Total
Machine setups P12,190 80 150 230
Purchase orders 79,200 730 920 1,650
General factory 69,400 4,760 9,120 13,880
P160,790

Determine the unit product cost of each product for the

current period using the activity-based costing approach.

Answer:
a. The expected total direct labor hours during the period are
computed as follows:

Product C: 3,400 units x 1.4 hr. 4,760 hours

Product D: 4,800 units x 1.9 hrs. 9,120 hours
Total direct labor hours 13,880 hours

Using these hours as a base, the predetermined overhead

using direct labor hours would be:

Estimated overhead cost, P160,790

÷ Estimated direct labor hours, 13,880 = P11.58/DLH
 Using this overhead rate, the unit product costs are:

Product C Product D
Direct materials P 7.40 P12.70
Direct labor 14.00 19.00
Manufacturing overhead 16.22 22.01
Total unit product cost P37.62 P53.71

b. The overhead rates for each activity center are as follows:

Estimated
Overhead Expected Overhead
Costs Activity Rate
Machine setups P12,190 230 P53.00
Purchase orders P79,200 1,650 P48.00
General factory P69,400 13,880 P 5.00

The overhead cost charged to each product is:

Product C Product D
Activity Amount Activity Amount
Machine setups 80 P 4,240 150 P 7,950
Purchase orders 730 35,040 920 44,160
General factory 4,760 23,800 9,120 45,600
Total overhead cost P63,080 P97,710

Overhead cost per unit:

Product C: P63,080 ÷ 3,400 units = P18.55 per unit.
Product D: P97,710 ÷ 4,800 units = P20.36 per unit.

Using activity based costing, the unit product cost of each

product would be:

Product C Product D
Direct materials P 7.40 P12.70
Direct labor 14.00 19.00
Manufacturing overhead 18.55 20.36
Total unit product cost P39.95 P52.06