Big Picture in Focus: Uloa. Compute The Predetermine Rate For Factory

Department of Accounting Education
Mabini Street, Tagum City

Davao del Norte
Telefax: (084) 655-9591, Local 116
Week 6 & &: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to
a. Compute the predetermine rate for factory overhead and apply the
concept of factory overhead applied and control.
b. Allocate the budgeted costs from service department to producing
department by computation using different methods.
c. Analyze accounting for labor concepts and compute for the labor
charge to work in process and factory overhead
d. Compute for the product cost using process costing system by
preparing cost of production report.
Big Picture in Focus: ULOa. Compute the predetermine rate for factory
overhead and apply the concept of factory overhead applied and control;
Metalanguage
For you to demonstrate ULOg, you will need operational understanding of the terms
enumerated below.
Factory Overhead costs are those cost that are indirect to the production of
products.
Variable factory overhead costs are indirect costs that will vary to the level of
production in the relevant range.
Fixed variable overhead costs are indirect cost that will remain constant as to total
even there are increase or decrease in production level within the relevant range.
Mixed factory overhead costs are those costs that are having the characteristics of
both variable and fixed factory overhead.
Budgeted factory overhead costs are costs for the planned production of the
company for the future period.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus, you
are expected to utilize other books, research articles and other resources that are
available in the university’s library e.g. ebrary, search.proquest.com etc., and even
online tutorial websites.
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FACTORY OVERHEAD
All cost incurred related to factory that are indirect cost. All the cost that are not direct
materials and direct labor is now considered as factory overhead.
There are three categories of factory overhead are:
Variable factory overhead cost is the cost that will vary directly as to the change in
level of production within the relevant range as to total, it means that the production
increases the total variable factory overhead variable cost will also increase but the
variable FOH cost per unit is constant and does not change as the level of production
changes.
Fixed factory overhead cost – cost that is constant as to total and does not vary whith
the changes in the level of production but in fixed FOH cost per unit, it vary inversely
to the production, means that the production increases the cost per unit will decrease
and vice versa.
Mixed factory overhead cost are cost that are partially fixed and partially variable in
nature and have characteristics of both fixed and variable. This cost must be separated
properly for the purpose of planning and control of the costs within the organization.
Budgeted Factory Overhead Costs are costs that are prepared for the plan of the
expected level of production. In order to create a flexible budget the separation of the
cost in the classification is a must.
COMPUTATION OF THE FACTORY OVERHEAD PREDETERMINED RATE

The basis are the following of the computation:
Physical output or the units produced – expressed in peso per unit
Estimated FOH
Factory overhead rate =-------------------------------------------
Estimated Units Produced
Direct materials cost - it is expressed in a percentage.
Estimated FOH
Factory overhead rate =-------------------------------------------------
Estimated Direct Material Cost
Direct labor cost - it is also expressed in a percentage.
Estimated FOH
Factory overhead rate =----------------------------------------------
Estimated Direct Labor Cost
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Direct labor hour -expressed in peso per hour
Estimated FOH
Factory overhead rate =-----------------------------------------------
Estimated Direct Labor Hours
Machine hours -expressed in peso per hour
Estimated FOH
Estimated Machine Hours
Illustration
Melchorians Corporation provides expection for the next year planned production.
They expect that the FOH cost is P/ 12,000,000. It is estimated that the units produced
is 1,000,000 units that will need 400,000 machine hours and 500,000 direct Labor
hours. And the materials needed to produce 1 unit is 12 pounds at P 25 per pounds
and the direct labor rate per hour is P 20 per hour
Required:
Compute for the factory overhead rate for the following bases physical output, DL cost,
DL hours, direct material cost, machine hours.
Answer for the required:
Physical output or the units produced
Estimated FOH
Estimated Units Produced
12,000,000
1,000,000
Factory overhead rate = 12/ unit
Direct materials cost
Estimated FOH
Factory overhead rate =-------------------------------------------------
Estimated Direct Material Cost
12,000,000
30,000,000
Factory overhead rate = 40% of direct material cost

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Direct labor cost
Estimated FOH
Factory overhead rate =----------------------------------------------
Estimated Direct Labor Cost
12,000,000
10,000,000
Factory overhead rate = 120% of direct labor cost
Direct labor hour
Estimated FOH
Factory overhead rate =-----------------------------------------------
Estimated Direct Labor Hours
12,000,000
500,000
Factory overhead rate = 24/direct labor hours
Machine hours
Estimated FOH
Estimated Machine Hours
12,000,000
400,000
Factory overhead rate = 30/machine hours
Let’s Check!
I. Questions:
1. What is factory overhead?

________________________________________________________
________________________________________________________
________________________________________________________
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2. What is/are the difference/s of variable, fixed and mixed factory overhead?
________________________________________________________
________________________________________________________
________________________________________________________
3. What is predetermined factory overhead rate?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The term overapplied overhead is not used with actual costing.

2. Underapplied overhead indicates inefficient operations.
3. The variable factory overhead that vary in direct proportional to the level of
production, if within the irrelevant range.
4. When overapplied overhead occurs only when actual cost is lesser than the
applied factory overhead.
5. Overhead applied is assigned directly to the cost of goods sold alone.
III. Multiple choice
1. Fixed production overheads include all, except

a. Indirect materials and indirect labor
b. Depreciation of factory building
c. Maintenance of factory equipment
d. Cost of factory management and administration
2. A predetermined overhead rate CANNOT be used
a. if a company does not budget its overhead costs.
b. by a company that uses job-order costing.
c. in a multiple-product company.
d. by a highly automated company where labor is a minor part of product
cost.
3. Predetermined overhead rates are based on activity measured by
a. number of jobs. c. units of sales.
b. units of production. d. units of an input factor.
4. A credit to the Manufacturing Overhead control account represents the
a. actual cost of overhead incurred.
b. actual cost of overhead paid this period.
c. amount of overhead applied to production.
d. amount of indirect material and labor used during the period.
5. Machine hours used to set the predetermined overhead rate were 25,000,
actual hours were 24,000, and overhead applied was P 60,000. Budgeted
overhead for the year was
a. P 57,600. b. P 59,000. c. P 60,000. d. P 62,500.
6. Hoyt Company applies overhead at $4 per direct labor hour. In March Hoyt
incurred overhead of P 96,000. Underapplied overhead was P 4,000. How
many direct labor hours did Hoyt work?
a. P 25,000 b. P 24,000 c. P 23,000 d. P 22,000
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Let’s Analyze!
Pronthons Corporation identified that the budgeted overhead is P 4,500,000 for the
company every year the company requiring 800,000 machine hours and 450,000
direct labor hours. The company produce 600,000 units of the product and will use a
total of 10,000,000 worth of manufacturing costs which consist of 40% material cost
and the rest is conversion cost the labor cost is twice the amount of the factory
overhead applied. Compute for the predetermined factory overhead rate on the
following basis:
1. Material Cost
2. Direct Labor Cost
3. Direct Labor Hours
4. Machine Hours
5. Units produce
In a Nutshell
Hauxtable charges manufacturing overhead to products by using
predetermined application rate, computed on the basis of machine hours.
The following data pertain to the current year:
Budgeted manufacturing overhead: P 480,000
Actual manufacturing overhead: P 440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
How much is the overhead applied to production totalled:
Q&A List
Do you have any question for clarification?

Questions/Issues Answers
1.
2.
3.
4.
5.
Keywords index
Factory Overhead Factory Overhead Rate
Variable factory overhead Fixed factory overhead
Budgeted factory overhead Mixed factory overhead
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Self-Help: You can also refer to the sources below to help you
further understand the lesson.
You can also refer to the sources below to help you further understand the
lesson:
De Leon, N. D., De Leon, E. D. and De Leon, G. Jr. M. (2019). Cost accounting and
control. Manila: GIC Enterprise & Co., Inc.
Garrison, R.H., & Noreen, E.W. (2003). Managerial accounting (10th ed.). McGraw-
Hill Company, Inc.
Cabrera, E. B. (2014). Management accounting: concepts and application. Manila:
GIC Enterprise & Co., Inc.
Big Picture in Focus: ULOb. Allocate the budgeted costs from service
department to producing department by computation using different
methods;
Metalanguage
For you to demonstrate ULOf, you will need operational understanding of the terms
enumerated below.
Departmental costs is the expenses related to a certain department that entrusted

to them to achieve their goals and objective.
Direct method is the method that allocates the costs of the manufacturing services
department directly to the production department of the company and to the product
itself
Step method is a method that allocates the cost of a service department to other
service departments in a sequential manner as well as to operating departments
Algebraic method is a method that the cost are allocated to each one of producing
and service departments and vice versa that’s why this is also known as reciprocal
method
Service department is part of the company that gives services to the whole
company.
Producing department is a part of the company that is responsible of producing

what are to be produced and manufactured.
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Essential Knowledge
STEPS IN COMPUTING DEPARTMENTALIZED OVERHEAD RATE
Each company are divided intor segment that is also called departments or cost center
to which the expenditures are charge and allocated.
Reasons of allocating the cost to the departments:
a. To encourage operating departments to wisely use service department

resources.
b. To provide operating departments with more complete cost data for making
decisions.
c. To help measure the profitability of operating departments.
d. To create incentive for service departments to operate efficiently.
e. To value inventory for external financial reporting purposes.
f. To include all overhead in the cost base when cost-plus pricing is used.
Selection of Allocation Bases
The allocation bases used should “drive” the cost being allocated. For example,
when allocating costs of the employee cafeteria, the number of meals served would
be a good
choice for the allocation base.
There are 3 methods of allocating srvice department cost to producing departments
1. Direct Method
Service Departments Producing Departments
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2. Step Method or Step Down Method, under this method the one of the service
department will give allocation to other service departments. The one who will be
allocated first is the one that renders the greatest service to the other
departments.
3. Algebraic Method or Reciprocal Method

Illustration:
Service Departments Producing

Departments
A B C D
Produced Units 50,000 70,000
Direct Labor Hours 100,000 90,000
Departmental Cost 150,000 250,000 1,200,000 1,150,000
Allocation of A - 10% 45% 45%
Allocation of B 5% - 55% 40%
Compute for the factory overhead rate per producing department using direct method,
step method and algebraic method. The basis of factory overhead rate is direct labor
hours.
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Direct method
A B C D
A (150,000) - 75,000 75,000
B - (250,000) 144,737 105,263
-0- -0- 1,419,737 1,330,263
Divided by: Direct Labor Hours 100,000 90,000
14.20/DLH. 14.78/DLH
Allocation of A
C = 150,000 * 45%/(45%+45%) = 75,000

D = 150,000 * 45%/(45%+45%) = 75,000
Allocation of B
C = 250,000 * 55%/(55%+40%) = 144,737
D = 250,000 * 40%/(55%+40%) = 105,263
Step method or Step Down method

A B C D
A (162,500) - 81,250 81,250
B 12,500 (250,000) 137,500 100,000
-0- -0- 1,418,750 1,331,250
14.1875/DLH 14.79/DLH
Allocation of B
A = 250,000 * 5% = 12,500
C = 250,000 * 55% = 137,500
D = 250,000 * 40% = 100,000
Allocation of A
C = 162,500 * 45%/(45%+45%) = 81,250
D = 162,500 * 45%/(45%+45%) = 81,250
Algebraic Method or Reciprocal Method

A B C D
A (163,317) 16,332 73,493 73,492
B 13,317 (266,332) 146,482 106,533
-0- -0- 1,419,975 1,330,025
14.20/DLH 14.78/DLH
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Equation: Allocation of A,
A = 150,000 + .05B B = 163,317 * 10% = 16,332
B = 250,000 + .10A C = 163,317 * 45% = 73,493
D = 163,317 * 45% = 73,492
Solve for A, Allocation of B,

A = 150,000 + (250,000 + .10A) (.05) A = 266,332 * 5% = 13,317
A = 150,000 + 12,500 + .005A C = 266,332 * 55% = 146,482
A - .005A = 162,500 D = 266,332 * 40% = 106,533
.995A =162,500
162,500
A = -------------
.995
A = 163,317
Solve for B,
B = 250,000 + .10A
B = 250,000 + .10(163,317)
B = 250,000 + 16,332
B = 266,332
Let’s Check!
I. Questions:
1. What is service department?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is producing departments?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is/are the difference/s between direct method, step method and
algebraic method?
________________________________________________________
________________________________________________________
________________________________________________________
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II. True or False
1. Inter-service department activities are fully ignored by both the direct and
step method of cost allocation
2. Service department are those department that gives support to the
producing department.
3. Direct method is the allocation of departmental costs that do not provide
allocation to other service department.
4. Service department are sometimes called indeterminate costs centers
while production departments would be the final cost centers,
5. If there is no inter service department activities this means that the
allocation of the cost of the three methods will give identical results.
1. Which of the following is not a primary purpose given in the text for
allocating costs?
a. To provide information for economic decisions
b. To motivate managers and other employees
c. To measure income and assets for reporting to external parties
d. To foster cost awareness among managers to improve decisions
2. Consider the following statements about the step-down method of service
department cost allocation:
I. Under the step-down method, all service department costs are
eventually allocated to production departments.
II. The order in which service department costs are allocated is
important.
III. Once a service department's costs have been allocated, no costs
are re-circulated back to that department.
Which of the above statements is (are) correct?
a. I only. b. II only. c. I and II. d. I and III. d. I, II, and III.
3. The method of allocating service departmental costs that the service
department gives allocations to each other.
a. Direct Method c. Step Method
b. Least Square Method d. Algebraic Method
4. Consider the following statements about the direct method of service
department cost allocation:
I. Under the direct method, all service department costs are
eventually allocated to production departments.
II. The order in which service department costs are allocated to
production departments is important.
III. Once a service department's costs have been allocated, no costs
are re-circulated back to that department.
Which of the above statements is (are) correct?
A. I only. B. II only. C. I and II. D. I and III. E. I, II, and III.
5. The Milrose Clinic has two service departments (Human Resources and
Information Resources) and two "production" departments (In-patient
Treatment and Out-patient Treatment). The service departments service
each other, and studies have shown that Information Resources provides
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the greater amount of service. Which of the following allocations would

occur if Milrose uses the direct method of cost allocation?
a. Information Resources cost would be allocated to In-patient
Treatment.
b. Information Resources cost would be allocated to Human Resources
c. Human Resources cost would be allocated to Information Resources
d. In-patient Treatment cost would be allocated to Out-patient
Treatment
e. Out-patient Treatment cost would be allocated to Information
Resources
6. Billy Stone, Inc., budgets the following amounts for its Buildings & Grounds
and Computer Services Departments in servicing each other and the two
manufacturing divisions of Signs and Mailers:
Used By
Supplied By Building & Computer
Grounds Services Signs Mailers
Buildings & Grounds — 0.20 0.60 0.20
Computer Services 0.15 — 0.30 0.55
Actual cost data for each department are:

Fixed Variable
Buildings & Grounds P 50,000 P 90,000
Computer Services P 100,000 P 21,000
Total fixed costs allocated from Buildings & Grounds to the Signs
Department, using the preferred allocation basis, by the direct allocation
method are
a. P 37,500. b. P 33,333. c. P 30,000. d. P 25,000.
The following information presented in the report of Mengilians Corporation.

Service Departments Producing Department
ADMIN BACS Accounting Others
Department Costs P180,000 90,000 190,000 900,000
Number of Employees 15 5 20 80
Number of PC’s 12 20 18 102
Allocation bases:
Business school administration costs (ADMIN): Number of employees
Business Administration computer services (BACS): Number of personal
computers.
7. Using direct method, how much cost will be allocated from Administration
to Accounting?
a. P 36,000 b. P 144,000 c. P 180,000 d. P 27,000
8. Using direct method, how much total cost will be allocated from ADMIN and
BACS combined to the Accounting Department?
a. P 52,500 b. P 135,000 c. P 270,000 d. P 49,500
9. Using step method, how much total cost will be allocated from ADMIN and
BACS combined to the Accounting Department?
a. P 35,250 b. P 49,072 c. P 18,000 d. P 26,333
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The following information presented in the report of Mengilians Corporation.

Service Departments Producing Department
ADMIN BACS Accounting Others
Department Costs P180,000 90,000 190,000 900,000
Number of Employees 15 5 20 75
Number of PC’s 22 20 48 130
Allocation bases:
Business school administration costs (ADMIN): Number of employees
Business Administration computer services (BACS): Number of personal
computers.
10. Using algebraic method, how much total cost will be allocated from ADMIN
and BACS combined to the Accounting Department?
a. P 38,190 b. P 49,072 c. P 62,081 d. P 23,891
Let’s Analyze!
Wyoming State College has two service departments, the Library and Computing
Services, that assist the School of Business and the School of Health. Budgeted
costs of the Library and Computing Services are $800,000 and $1,800,000,
respectively. Usage of the service departments' output during the year is anticipated
to be:
User of Service Library Computing Services
Library --- 10%
Computing Services 15% ---
School of Business 20% 60%
School of Health 65% 30%
The equation to determine the total costs allocated from Library to School of
Business and School of Health using the reciprocal allocation method is
In a Nutshell
The Dollar Store has a Human Resources Department and a Janitorial Department
that provide service to three sales departments. The Human Resources Department
cost is allocated on the basis of employees, and the Janitorial Department cost is
allocated on the basis of space. The following information is available:
Human
Resources Janitorial Sales #1 Sales #2 Sales #3
Budgeted cost $45,000 $30,000
Space in square feet 4,000 1,000 20,000 30,000 50,000
Number of 5 10 15 45 30
employees
Using the direct method, the amount of Janitorial cost allocated to Sales #2 is:
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Q&A List
1.
2.
3.
4.
5.
Keywords index
Direct Method Algebraic Method
Step Method Department Cost
Service department Producing department
lesson:
Hill Company, Inc.
Big Picture in Focus: ULOc. Analyze accounting for labor concepts

and compute for the labor charge to work in process and factory
overhead;
Metalanguage
enumerated below.
Wage plan is the plan or the scheme of providing salaries and wages to employees.
Labor overhead is labor that is reported to the factory overhead. This is labor other
than direct and indirect.
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Essential Knowledge
ACCOUNTING FOR LABOR
Labor are any physical or mental effort provided by employee, works or human
resources in producing the product. They are paid with employee benefit such as
compensation, salaries and wages and this payment may be hourly, daily, weekly,
biweekly, monthly, yearly or piece work basis. Wages are paid to production workers
and salaries are paid to managerial and clerical services.
Factory payroll are classified into direct labor and indirect labor. Direct Labor are cost
that are directly related to the production cost, while indirect labor are those cost that
are not directly attributed to the product.
The procedures of recording payroll cost.
• Recording the number of hours by total or by job, the quantity produced by

factory workers
• Determine and analyze the hours how time are used by the employee and how
this to be charge.
• Payroll cost are allocated to the job and factory overhead accounts
• Preparation of payroll including gross earning, total deductions and net
earnings.
Wage Plan
The company uses different type of wages plans established by management and
approved by unions and comply with regulatory agencies.
Hourly-Rate Plan is a plan that each employee will be given a fix rate per hour and
their compensation will be computed by multiplying the number of hours and the fix
rate per hour. This does not provide incentive to employee during high productivity.
Piece-Rate Plan a plan that the company provide a fix rate per unit and of the earnings
are based on the output of the employee finished during the production. The earnings
shall be computed by the total output multiplied by the fixed rate per unit.
Modified Wage Plan a plan of the company to give a combines the features of Hourly-
Rate plan and Piece rate plan. The company will give fix amount of earnings to the
employee at the same time provides incentive for high level productivity or exceed the
quota.
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Controlling Labor Cost
Maintaining a reliable record of labor is the responsibility of time-keeping department

and payroll department. Time-keeping department account the time spent by the
employee per job or in the organization and keeping the records from clock cards, time
ticket and production reports, while payroll department computes the compensation of
the employee and workers and they maintain records about payroll, employee
earnings and payroll summaries.
Accounting for Labor Cost
The labor costs is distributed to the appropriate accounts. The company should
segregate the overtime pay from regular employee time as the treatment of this pay is
different from each other. The overtime will earn an overtime premium, this premium
will be recorded as part of the factory overhead control account.
Example: Jose an employee that earn a regular rate of P 75.00 per hour for an 8-hour
duty. Jose partake 2 hours every day for 5 days in excess of the 8 hours and he will
get 40% overtime premium form the excess time from the regular 8-hours duty. He will
be paid weekly
Computation:
Direct Labor (8 * P 75.00 * 5) = 3,000
Direct Labor (2 * 5 * P 75.00) = 750
Factory Overhead Control (P 75.00 * 40% * 2 * 5) = 300
Total 4,050
Journal Entry:
Work in process 3,750
Factory Overhead Control 300
Payroll 4,050
Employee Payroll Taxes
SSS Contribution is a statutory deduction for an employee that is contributed to the
Social Security system for monthly pension at the time of retirement and death benefits
and loans (housing, calamity, educational, maternity, fraternity and other loans).
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Pag-Ibig Contribution is also a statutory deduction that should be according to the

table of payment. Upon retirement the amount returned to the employee will be the
contribution of the employee and employer plus accumulated dividends
Regular Local Employee an OFW with employers subject to Pag-IBIG coverage

Compensation Employee share Employer share
1,500 and below 1% 2%

Above 1,500 2% 2%
Self-Employed and OFW with employer exempted from Pag-IBIG coverage

Compensation Share
1,500 and below 1%
Above 1,500 2%
PhilHealth Contribution is for the benefit of the employee for hospitalization and
medical assistance.
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Withholding Taxes
Income tax for the compensation of employee and as per TRAIN Law the income tax
is based on below table.
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Payroll Summary
For the period June 1-15, 2020
Jose Joanna Total

Gross Earnings 10,000.00 25,000.00 35,000.00
Less: Withholding and Deduction:
Income Taxes 0.00 3,333.25 3,333.25
SSS Premiums 800.00 800.00 1,600.00
Phil Health Contributions 600.00 750.00 1,350.00
Pag-Ibig Contributions 400.00 500.00 900.00
Total Deductions 1,800.00 5,383.25 7,183.25
Net Earnings 8,200.00 19,616.75 27,816.75
Classification of Labor
Direct labor – labor that are feasible to be measured and directly identified and charge
to the production of the products.
Indirect labor – labor that are feasible but cannot be charge and identify directly to
the production of the products. This will benefit the production, in general.
Labor Overhead
Waiting time – is non-productive hours of employees and workers due to lack of work,
materials delay, machine breakdown and machine set-up the amount paid to the
employee due to this reason shall be recognized in the factory overhead accounts.
Example the company is setting up the machine for the new manufacturing process
and it take two hours to set up then, Jose is an employee who is affected by the set
up and paid 100 per hour for 8 hours a day. In his weekly payroll the journal entry is:
Work in Process (8 * 5 = 40 – 2 = 38 * 100) 3,800
Factory Overhead Control*** (2 * 100) 200
Payroll 4,000
***the two hour set up time
Make-up pay – the employee are paid based on the number of units produced are at
a “piecework” compensation plan. The employee is given a minimum wages but they
can earn if they can produced more. Thus, the minimum pay guarantees them salary.
If the employee has P 5,000 minimum wages and his rate is P 200 pesos per piece of
output and for the payroll period he finished 23 units. Thus, his pay based on the
piecework is P 4,600 but he will receive P 5,000 as the minimum wages, so the
difference of P 400 is known as the make-up pay and charge to the factory overhead.
The journal entry would be:
Work in Process 4,600
Factory Overhead Control 400
Payroll 5,000
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And if the employee produce 29 units of output thus, the payment received by the
employee is 5,800 (29*200). Then in this situation there is no make-up pay.
The journal entry would be:
Payroll 5,800
And if the employee produce 25 units of output thus, the payment received by the
employee, since the minimum wage is equal to the actual pay, then no make-up pay
is given. The journal entry would be:
Payroll 5,000
Overtime premium – an amount paid in excess of the regular time of work.
Example: Princess is an evening shift that earns P 400 per day for 8-hour duty and
50% is given for an overtime premium. She render 3 hours overtime in Monday,
Wednesday and Friday. She is paid weekly and work 5 days in a week. The journal
entry and computation is as follows:
Work in process (50 * 49) 2,450

Factory Overhead Control (50 * 50% * 9) 225
Payroll 2,675
400/8 = 50 per hour

8 * 5 = 40 hours and 3 * 3 = 9 overtime ; 40+9 = 49 total hours
Shift premium – an extra pay for the employee, who work during evening or evening
shift or night shift. This shift or differential premium is charge to factory overhead.
Assume that Princess is an evening shift that earns P 400 per day for 8-hour duty and
P 100 differential pay. She is paid weekly and work 5 days in a week. The journal entry
and computation is as follows:
Work in Process (400 * 5) 2,000

Factory Overhead Control (100 * 5) 500
Accrued Payroll 2,500
Employer’s payroll taxes – the share of the employer from the statutory deduction
that is remitted to the SSS premiums, PhilHealth contributions and Pag-Ibig
contributions.
Let’s Check!
I. Questions:
1. What is labor overhead?

________________________________________________________
________________________________________________________
________________________________________________________
Davao del Norte
Telefax: (084) 655-9591, Local 116
2. What are the different labor overhead reported to factory overhead?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The total factory labor cost is composed of direct labor and indirect labor
2. Direct labor costs is recorded by a debit to work in process account.
3. Payroll deductions are based on the gross earnings of the employee
(regular earnings plus overtime)
4. The amount of income taxes withheld from employee gross pay is an
expense to the employer.
5. In ideal circumstances, each payroll check is delivered personally to the
employee who signs a receipt for it.
1. The following were the different wage plans commonly used by some
companies, except
a. Hourly-Rate Plan c. Work-Rate Plan
b. Piece-Rate Plan d. Modified Wage Plan
2. “Take home pay” or net pay means
a. gross pay plus the amount paid for you by your employer.
b. gross pay less all deductions
c. the amount earned per hour times number of hours worked.
d. gross pay less only income tax withheld.
3. Fringe benefits of office personnel is usually charged to
a. Work in process account c. Selling expense
b. Administrative expenses d. Factory Overhead Control
4. To check the accuracy of hours worked, one would ordinarily compare clock
cards with:
a. employee earnings records c. job tickets
b. personnel records d. labor variance reports
5. An example of a fringe benefit is:
a. the employer portion of Payroll taxes
b. the straight rate for overtime hours
b. the direct labor wage rate
d. withheld taxes
6. An employee is paid a base rate of P 800 for 52 weeks. The employee is
entitled to a two-week vacation each year. Factory Overhead Control is
debited each week for accrued vacation pay of:
A. P 15.38 B. P 30.77 C. P 20 D. P 32
7. If an employee earns P 10 per hour and receives time-and-a-half for hours
worked in excess of 40 per week, in a week when 45 hours were worked
the overtime premium would be:
A P 25 B. P 50 C. P 10 D. P 5
Davao del Norte
Telefax: (084) 655-9591, Local 116
Let’s Analyze!
Hopkins Company having total labor costs for Antonne Dey Vere of 347,500 which is
composed of 25% indirect labor, 10% selling and administrative expense and the rest
is direct labor as he has multiple work in the company.
Journalize the transaction and compute for the statutory deduction of Mr. Antonne Dey
Vere.
In a Nutshell
Red Company incurred the following costs related to the labor overheads during the
week for the three(3) employee:
I. Jessa, One of the factory workers works for 8 hours a day with a rate or P 235 per
hour and given 35% premium for the overtime. During the week (5 day) this
employee work for 43 hours.
II. Anna, Another employee of the factory work for the company with a minimum
compensation of P 2,500 based on the P 25 rate per piece of output. This
employee for the week he produce 90 pieces of output.
III. Diana, and employee of the factory having a night shift work which the company
provides a night differential pay premium of 40% of her current rate which is P
290/hour. The employee had worked for 5 days a week.
Required:
1. The total cost presented as part of the factory overhead control account is
2. Based on the above information, How much is the total cost that should be
part of the Work in Process Account?
3. Prepare a One(1) Compound Journal entry to record the transactions a, b &
c. (3 points)
Q&A List
1.
2.
3.
4.
5.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Keywords index
Job order Costing Indirect Labor
Direct Labor Labor Overhead
Idle pay Make-up pay
Differential pay Overtime premium
Withholding taxes Statutory Deductions
Employer’s Payroll taxes Wage Plan
lesson:
Hill Company, Inc.
Big Picture in Focus: ULOd. Compute for the product cost using process
costing system by preparing cost of production report.
Metalanguage
enumerated below.
Process Costing is a term used in to describe a method for collecting and assigning
manufacturing costs to the units produced and used for processing identical
products.
Cost of Production Report a report that summarizes

the production and cost activity within a department for a reporting period. It is simply
a formal summary of the four steps performed to assign costs to units transferred out
and units in ending work-in-process (WIP) inventory.
Essential Knowledge
Davao del Norte
Telefax: (084) 655-9591, Local 116
PROCESS COSTING
Costs incurred in this system are allocated during the period. The cost is summarized
on the cost of production report and one report per department for the period of time.
The cost is allocated to the work in process, end and units completed and transferred
or the finished goods. The cost per unit will increase as the product will approaching
to the end of the process as the cost per department is added.
The cost are computed as follow: if the cost of cutting department is P 25.00 per unit,
assembly department is P 20.00 per unit, furnishing department is P 35.00 per unit
and finishing department is P 24.00 per unit.
Therefore, the total cost of the product s computed as follows:
Cutting Department P 25.00

Assembly Department 20.00
Furnishing Department 35.00
Finishing Department 24.00
Total Product Cost per unit 104.00
System Flow
UNITS TO ACCOUNT FOR UNITS ACCOUNTED FOR
Beginning, Work in Process(Units) Units Completed and Transferred

+ +
Unit Started in the Process or Units Units Completed and On Hand
Received from Previous Department
+ +
Increase in Units due to addition of Units in Process, End
materials
Davao del Norte
Telefax: (084) 655-9591, Local 116
Product Flow
The production process will flow through the factory in the three different ways.
1. Sequential product flow – the process starts in the first department and every
other department must be finished first before other department started.
Department 1
Department 2
Department 3
Department 4
2. Parallel product flow – in this process two departments will start at the same time
and meet or combined in one process.
Davao del Norte
Telefax: (084) 655-9591, Local 116
3. Selective product flow – a process that starts with one department and produce
more than 1 finished products.
Direct Materials
Work in Process – Department 1 xxxxxx

Materials xxxxxx
Direct Labor

Payroll xxxxxx
Factory Overhead

Factory Overhead Applied xxxxxx
Davao del Norte
Telefax: (084) 655-9591, Local 116
THE COSTS OF PRODUCTION REPORT
All costs are chargeable to a department are presented according to the cost
elements. The cost are determine by presenting this report as this is the analysis of
the activity in the department for the period. The following steps must be followed in
presenting and preparing cost of production report.
Step 1 – The quantity schedule
This presents the physical flow of the units into and out of departments and all the
units started in the department must be accounted for. This schedule is concern only
with the whole units and not considering the stage of completion.
Step 2 – Calculate Equivalent Units and Unit Costs
Not all units are not usually completed thus, there are still units that are still in process
and varying stage of completion at the end of the period. The equivalent unit of
production is equal to the restatement of the completed unit in the work in process,
end and the completed unit. The completed units are not a problem. The problem is
the restatement of incomplete units in terms of completed unit. The incomplete units
is accounted for as work in process inventory, end.
Step 3 – determine the costs to be accounted for (cost charge to the department)
The cost of the beginning work in process is the combination of direct materials, direct
labor and factory overhead that were assigned from the last period that must be
accounted for. If the department is not the first department of the process then the
department will receive units from previous department from there as the units receive
the cost from the previous department is also received accordingly. The department
also incur costs from material, labor and factory overhead in its own processing. The
total of this costs must be determined and that composes the total cost of the product.
Step 4 – Account for all cost
The cost now is allocated to the completed and transferred, work in process, end and
lost if there is any. The cost for the completed units will be charge to the next
department, and the remaining cost will be allocated to either the work in process, end
and the lost units if there is any.
Methods of Application of Elements of Cost to Production
Even application – the introduction of the three elements of the product cost are
evenly introduce in the process. Thus, one equivalent production is computed.
Uneven application – the elements are introduce to any stage of the process hence,
many computation of equivalent production is computed as the elements are applied
to the production not equal.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Computation of Equivalent Production

1. Units received from preceding department 15,000 units
Units Completed and Transferred 12,000 units
Units in process, end (60% completed) 3,000 units
Materials are added 100% at the beginning of the process
Solution: Materials Labor and Overhead

Actual Work Done EP Work Done EP
Units received 15,000
Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 100% 3,000 60% 1,800
15,000 15,000 13,800
As you observe the materials are 100% work done in either units completed or units
in process. This is the result as the materials are added to the process at the
beginning.
2. Same date as number but this time the materials are added at the end of the
process.

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 - - 60% 1,800
15,000 12,000 13,800
As you observe the materials are 100% work done in the units completed and no work
done in units in process. This is the result as the materials are added to the process
at the end. The units in process are still in 60% means that it does not approach to the
end of the process, so the material is none.
3. Same date as number but this time the materials are added in the following
stage of the process.
20% completed = 50% of the materials

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 50% 1,500 60% 1,800
15,000 13,500 13,800

As you observe the materials are 100% work done in the units completed and 50%
work done in units in process. This is the result as the 50% of the materials are added
to the process when the units are 20% completed and the other 50% is added to the
Davao del Norte
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process when the units are 80% completed. Therefore, 50% is the work done is
applied to the units in process.
4. Same date as number but this time the materials are added in the following
stage of the process.
At the beginning of the process = 50% of the materials
At the end of the process = the remaining materials

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 80% 2,400 60% 1,800
15,000 14,400 13,800
As you observe the materials 80% work done in units in process. This is the result
when the 50% of the materials are added at the beginning of the process, another
30% will be added when the units are 50% completed and the remaining 20% are
added at the end of the process. Therefore, 80% work done of material applied to the
units in process.
Cost of Production Report
The following data pertains to the production of Delmorales Corporation for the month
of July 2020.
Units Cutting Department Assembly

Department
Started 35,000 30,000

Completed & Transferred 30,000 28,000
In process, end 5,000 2,000
Stage of completion 50% 70%
Costs
Materials 420,000 140,000
Labor 390,000 135,240
Factory Overhead 260,000 114,660
The materials are added in the Cutting Department at the beginning of the process. In
the Assembly Department the materials is added at the end of the process.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Delmorales Corporation
For the month of July 2020
(Cutting Department)
Materials Conversion Cost

Quantity Schedule Actual WD EP WD EP
Unit Started 35,000
Units Completed 30,000 100% 30,000 100% 30,000
Units in Process, end 5,000 100% 5,000 50% 2,500
35,000 35,000 32,500
Cost Charge to the department:
Materials 420,000 12 (420,000/35,000)
Labor 390,000 12 (390,000/32,500)
Factory Overhead 260,000 8 (260,000/32,500)
Total added/Total cost to be accounted for 1,070,000 32
Cost accounted for as follows:
Completed and Transferred (30,000 * 32) 960,000
Units in process, end: Materials (5,000 * 12) 60,000
Conversion Cost (2,500 * 20) 50,000 110,000
Total cost as accounted for 1,070,000
(Assembly Department)

Unit Started 30,000
Units Completed 28,000 100% 28,000 100% 28,000
Units in Process, end 2,000 - - 70% 1,400
30,000 28,000 29,400
Cost from preceding department 960,000 32.00
Materials 140,000 5.00
(140,000/28,000)
Labor 135,240 4.60
(135,240/29,400)
Factory Overhead 114,660 3.90
(114,660/29,400)
Total added 389,900 13.50
Total cost to be accounted for 1,349,900 45.50
Davao del Norte
Telefax: (084) 655-9591, Local 116

Completed and Transferred (28,000 * 45.50) 1,274,000
Units in process, end:
Cost from preceding department (2,000 * 32) 64,000
Conversion Cost (1,400 * 8.5) 11,900 75,900
Journal Entries:
Work in process – Cutting Department 420,000
Work in process – Assembly Department 140,000
Materials 560,000
Issuance of materials

Payroll 525,240
Issuance of labor costs

Factory Overhead Applied 374,660
Issuance of factory overhead

Work in Process – Cutting Department 960,000
Transfer of units from cutting to assembly department
Finished goods 1,274,000

Work in Process – Assembly Department 1,274,000
Transfer of units completed to the finished goods.
Cost of Goods Manufactured Statement
Direct Materials 560,000

Direct Labor 525,240
Factory Overhead 374,660
Total Manufacturing Costs 1,459,900
Less: Work in Process, End (75,900+110,000) (185,900)
Cost of Goods Manufactured 1,274,000
The scrap and defective units are accounted the same as the accounting in job order
costing. The cost to rework is normally charge to factory overhead control account
rather than work in process because usually the defective unit is a result of internal
Davao del Norte
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failure rather than customer’s specifications. The units are classified as lost in a
process costing is the same accounting of the spoiled under job order costing. During
the quality control inspection, when lost are discovered the lost are removed from the
process as this is discovered with imperfections.
NORMAL/ABNORMAL LOSS
Normal loss is an expected loss of the company; while abnormal loss is the loss
beyond the expected loss of the company. The cost of normal lost is charged to
product cost as they become part of the finished goods. While cost of the abnormal
lost is recognized in the factory overhead cost.
A. The cost of the normal lost units is charged to completed units and units in
process at the end, when normal lost are discovered
1. At the beginning
2. During the process and no quality control inspection is indicated
3. At the end of the process
B. The cost of the abnormal lost units is charged to loss account or factory
overhead, when abnormal lost are discovered
1. At the beginning
2. During the process with the point of discovery stated in the problem
3. At the end of the process
Suggestions of procedures in calculating equivalent units of production for normal lost

units
A1 and A2
a. Do not assign work done to the lost units; and
b. Adjust the unit cost from the preceding department due to decrease in number
of units.
c. The cost of the normal lost are automatically charge to both completed units
and units in process, end due to above procedures.
A3
a. Assign work done to the lost units; and
b. No need to adjust the unit cost from the preceding department despite of the
lost units.
c. The cost of the lost units are calculated and added to the cost of the completed
units.
B1
a. Do not assign work done to the lost units; and
b. Cost from the preceding department will be charge to factory overhead.
B1
a. Assign work done to the lost units; and
b. The cost of the abnormal lost units is charge as an abnormal loss and debited
to the factory overhead control.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Computation of equivalent units of production for abnormal lost units is as follows:
a. The cost from the preceding department of the abnormal lost is charge as
abnormal loss, if the lost is discovered at the beginning of the process.
b. The cost of abnormal lost is charged to factory overhead control if the lost is
discovered at any other points in the process with or without inspection point.
Illustration:
Vid Co. produce product that will undergo 2 stage of process: Melting department and
Forming Department data about the process of the Forming department last Month
June 2020.
Units
Received from Melting Department 60,000
Completed and transferred to warehouse 50,000
In process, End (75% completed) 6,000
Costs
From Melting Department 600,000
Added in Forming Department during the month
Materials 280,000
Direct Labor 163,500
Factory Overhead 218,000
Materials are added at the beginning of the process
1. Normal Lost discovered at the beginning of the process
Vid Co.
For the month of June 2020
(Forming Department)

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 - - - -
60,000 56,000 54,500
Davao del Norte
Telefax: (084) 655-9591, Local 116

Materials 280,000 5.00
(280,000/56,000)
Labor 163,500 3.00
(163,500/54,500)
(218,000/54,500)
Total added 661,500 12.00
Total 22.00
Add: Adjustments .71428571

Cost from preceding department (6,000 * 10.71428571) 64,286
Materials (6,000 * 5.00) 30,000
Conversion Cost (4,500 * 7.00) 31,500 125,786
Adjustment for lost units is computed as follows:
a. Cost from preceding department

------------------------------------------- MINUS unit cost from preceding department
Total Units less lost Units
600,000 - 10.00 = 10.71428571 – 10.00 = .71428571

56,000
b. Unit lost * Unit cost from preceding department

Total Units less units lost
4,000*10 = 40,000 = .71428571
60,000 – 4,000 56,000
Journal entries:
Work in process – Forming Department 600,000

Work in Process – Melting Department 600,000
Work in Process – Forming Department 661,500
Materials 280,000
Payroll 163,500
Finished Goods 1,135,714

Work in process – Forming Department 1,135,714
Davao del Norte
Telefax: (084) 655-9591, Local 116
2. Normal Lost, discovered at the end of the process

Vid Co.

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 100% 4,000 100% 4,000
60,000 60,000 58,500
Materials 280,000 4.666666667
(280,000/60,000)
Labor 163,500 2.794871795
(163,500/58,500)
(218,000/54,500)
Total added 661,500 11.188034419

Completed and Transferred ((50,000+4,000) * 21.188034419) 1,144,154
Materials (6,000 * 5.00) 28,000
Conversion Cost (4,500 * 6.521367752) 29,346 117,346
Journal entries:

Materials 280,000
Payroll 163,500

Davao del Norte
Telefax: (084) 655-9591, Local 116
3. Normal Lost, discovered at the end of the process

Vid Co.

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 100% 4,000 100% 4,000
60,000 60,000 58,500
Materials 280,000 4.666666667
(280,000/60,000)
Labor 163,500 2.794871795
(163,500/58,500)
(218,000/54,500)
Total added 661,500 11.188034419

Factory Overhead Control (4,000 * 21.188034419) 84,752
Materials (6,000 * 5.00) 28,000
Conversion Cost (4,500 * 6.521367752) 29,346 117,346
Journal entries:

Materials 280,000
Payroll 163,500

Factory Overhead Control 84,752
Davao del Norte
Telefax: (084) 655-9591, Local 116
Let’s Check!
I. Questions:
1. What is process costing?
________________________________________________________
________________________________________________________
________________________________________________________
2. What is/are the difference/s from normal and abnormal lost?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is cost of production report?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. Equivalent units are computed to assign costs to partially completed units
2. Process costing is most appropriate when manufacturing large batches of
homogenous products.
3. A hybrid costing system would be appropriate for a company that
manufactures several varieties of jam.
4. All manufacturing costs other than direct materials are referred to as
conversion cost.
5. The quantity schedule is a report that give details on all manufacturing
quantities and costs, shows computation of EUP, and indicates cost
assignments to goods manufactured.

1. It is usually necessary to calculate equivalent unit production for
a. materials. c. materials and conversion costs.
b. conversion costs. d. materials, conversion costs, and
overhead.
2. Process costing is used in companies that
a. engage in road and bridge construction.
b. produce sailboats made to customer specifications.
c. produce bricks for sale to the public.
d. construct houses according to customer plans.
3. Equivalent units of production are equal to the
a. units completed by a production department in the period.
b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the
period had been used to produce whole units.
d. identifiable units existing at the end of the period in a production
department.
4. Transferred-in cost represents the cost from
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a. the last department only c. the last production cycle.

b. all prior departments. d. the current period only
5. Process costing techniques should be used in assigning costs to products
a. if a product is manufactured on the basis of each order received.
b. when production is only partially completed during the accounting period.
c. if a product is composed of mass-produced homogeneous units.
d. whenever standard-costing techniques should not be used.
6. Kerry Company makes small metal containers. The company began
December with 250 containers in process that were 30 percent complete
as to material and 40 percent complete as to conversion costs. During the
month, 5,000 containers were started. At month end, 1,700 containers were
still in process (45 percent complete as to material and 80 percent complete
as to conversion costs). What are the equivalent units for conversion costs?
a. 3,450 b. 4,560 c. 4,610 d. 4,910
Reedish Company has the following information for November:

Units Started 30,000 units
Ending Work in Process Inventory
(10% complete as to conversion) 8,500 units
Beginning WIP Inventory
Costs:
Material $23,400
Conversion 50,607
Current Period Costs:
Material $31,500
Conversion 76,956
All material is added at the start of the process and all finished products
are transferred out.
7. Assume that weighted average process costing is used. What is the cost
per equivalent unit for material?
a. P .55 b. P 1.05 c. 1.31 d. P 1.83
The Holiday Company makes wreaths in two departments: Forming and

Decorating. Forming began the month with 500 wreaths in process that
were 100 percent complete as to material and 40 percent complete as to
conversion. During the month, 6,500 wreaths were started. At month end,
Forming had 2,100 wreaths that were still in process that were 100 percent
complete as to material and 50 percent complete as to conversion. Assume
Forming uses the weighted average method of process costing. Costs in
the Forming Department are as follows:
Beginning Work in Process Costs:
Material $1,000
Conversion 1,500
Current Costs:
Material $3,200
Conversion 5,045
Davao del Norte
Telefax: (084) 655-9591, Local 116
The Decorating Department had 600 wreaths in process at the beginning

of the month that were 80 percent complete as to material and 90 percent
complete as to conversion. The department had 300 units in ending Work
in Process that were 50 percent complete as to material and 75 percent
complete as to conversion. Decorating uses the FIFO method of process
costing, and costs associated with Decorating are:
Beginning WIP Inventory:
Transferred In $1,170
Material 4,320
Conversion 6,210
Current Period:
Transferred In ?
Material $67,745
Conversion 95,820
8. How many units were transferred to Decorating during the month?
a. 600 b. 4,900 c. 5,950 d. 7,000
9. Mehta Company Co. uses a FIFO process costing system. The company
had 5,000 units that were 60 percent complete as to conversion costs at
the beginning of the month. The company started 22,000 units this period
and had 7,000 units in ending Work in Process Inventory that were 35
percent complete as to conversion costs. What are equivalent units for
material, if material is added at the beginning of the process?
a. 18,000 b. 22,000 c. 25,000 d.
27,000
10. Taylor Company uses a weighted average process costing system and
started 30,000 units this month. Taylor had 12,000 units that were 20
percent complete as to conversion costs in beginning Work in Process
Inventory and 3,000 units that were 40 percent complete as to conversion
costs in ending Work in Process Inventory. What are equivalent units for
conversion costs?
a. 37,800 b. 40,200 c. 40,800 d. 42,000
Let’s Analyze!
The Dark Delectables Company has two processing departments, Cooking and
Packaging. Ingredients are placed into production at the beginning of the process in
Cooking, where they are formed into various shapes. When finished, they are
transferred into Packaging, where the candy is placed into heart and tuxedo boxes
and covered with foil. All material added in Packaging is considered as one material
for convenience. Since the boxes contain a variety of candies, they are considered
partially complete until filled with the appropriate assortment. The following information
relates to the cooking departments for February 2020:
Units started this period 19,500 Units
Units completed and transferred 19,000 Units
Ending WIP (60% complete as to conversion) 500 Units
a. Determine equivalent units of production

Davao del Norte
Telefax: (084) 655-9591, Local 116
In a Nutshell
Quingchiley Company manufactures a specialized product. Department 2 adds new
material to the units received from Department 1 at the end of process. A normal loss
occurs early in processing. Production and cost data for Department 2 for the month
of September are as follows:
Production record (in units):
Received from Department 1 24,000
Completed and transferred to finished goods 16,000
Lost in processing (normal) 2,000
In process, September 30-2/3 complete for process cost 6,000
Cost Record:
Cost from preceding department in September 8,000
Material cost for September 36,000
Conversion cost for September 49,000
Required: Prepare Cost of Production Report.
Q&A List
1.
2.
3.
4.
5.
Keywords index
Job order Costing Cost of production report
Equivalent unit of production
lesson:
Garrison, R.H., & Noreen, E.W. (2003). Managerial accounting (10th ed.). McGraw-Hill
Company, Inc.
Davao del Norte
Telefax: (084) 655-9591, Local 116

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Department of Accounting Education

Mabini Street, Tagum City

There are three categories of factory overhead are:

COMPUTATION OF THE FACTORY OVERHEAD PREDETERMINED RATE

Physical output or the units produced – expressed in peso per unit

Direct materials cost - it is expressed in a percentage.

Direct labor cost - it is also expressed in a percentage.

Direct labor hour -expressed in peso per hour

Machine hours -expressed in peso per hour

Answer for the required:

Physical output or the units produced

Factory overhead rate = 12/ unit

Direct materials cost

Factory overhead rate = 40% of direct material cost

Direct labor cost

Factory overhead rate = 120% of direct labor cost

Direct labor hour

Factory overhead rate = 24/direct labor hours

Factory overhead rate = 30/machine hours

1. What is factory overhead?

3. What is predetermined factory overhead rate?

II. True or False

1. The term overapplied overhead is not used with actual costing.

III. Multiple choice

1. Fixed production overheads include all, except

How much is the overhead applied to production totalled:

Do you have any question for clarification?

Departmental costs is the expenses related to a certain department that entrusted

Producing department is a part of the company that is responsible of producing

STEPS IN COMPUTING DEPARTMENTALIZED OVERHEAD RATE

Reasons of allocating the cost to the departments:

a. To encourage operating departments to wisely use service department

Selection of Allocation Bases

There are 3 methods of allocating srvice department cost to producing departments

Service Departments Producing Departments

3. Algebraic Method or Reciprocal Method

Service Departments Producing

C = 150,000 * 45%/(45%+45%) = 75,000

Step method or Step Down method

Service Departments Producing Departments

Algebraic Method or Reciprocal Method

Solve for A, Allocation of B,

1. What is service department?

2. What is producing departments?

II. True or False

III. Multiple choice

the greater amount of service. Which of the following allocations would

Actual cost data for each department are:

The following information presented in the report of Mengilians Corporation.

The following information presented in the report of Mengilians Corporation.

Big Picture in Focus: ULOc. Analyze accounting for labor concepts

The procedures of recording payroll cost.

• Recording the number of hours by total or by job, the quantity produced by

Controlling Labor Cost

Maintaining a reliable record of labor is the responsibility of time-keeping department

Pag-Ibig Contribution is also a statutory deduction that should be according to the

Regular Local Employee an OFW with employers subject to Pag-IBIG coverage

1,500 and below 1% 2%

Self-Employed and OFW with employer exempted from Pag-IBIG coverage