Colossal Corporation estimates factory overhead of P207,000 for the

next fiscal year. It is estimated that 52,100 units will be produced at a

material cost of P500,000. Conversion will require an estimated 85,000
direct labor hours at a cost of P9.00 per hour, with 69,000 machine
hours.

Required: Calculate the predetermined factory overhead rate based on:

1. Material cost
2. Units of production
3. Machine hours 1.
4. Direct labor hours
5. Direct labor cost 2.

3.
COMPUTATION OF POHR
1 Traditional or Plantwide - one POHR 4.
2 Departmental Costing - as many as there are departments
3 Activity-based costing - as many as there are cost pools 5.
 = Budgeted FOH Costs
POHR
Budgeted Activity Base

POHR (MC) = 41.40% of raw material costs

POHR (UP) = 3.97 per unit

POHR (MH) = 3.00 per MH

POHR (DLH) = 2.44 per DLH

POHR (DLC) = 27.06% of direct labor costs

Roderick Manufacturing Co. has gathered the following information to
develop predetermined OH rates for 20XX. The company produces a wide
variety of energy-saving products that are processed through two
departments, Assembly (automated) and Finishing (labor intensive).

Budgeted total overhead: P600,400 in Assembly and P199,600 in Finishing

Budgeted total direct labor hours: 10,000 in Assembly and 40,000 in Finishing
Budgeted total machine hour: 76,000 in Assembly and 4,000 in Finishing

Required:
a. Compute a plantwide predetermined OH rate using direct labor hours.
b. Compute a plantwide predetermined OH rate using machine hours.
c. Compute departmental predetermined OH rates using machine hours for
Assembly and direct labor hours for Finishing.

d. Determine the amount of overhead that would be assigned to a product

that required 5 machine hours in Assembly and 1 direct labor hour in
Finishing using the answers developed in parts (a), (b), (c).
 OH Costs DLH MH =
POHR
Assembly 600,400 10,000 76,000
Finishing 199,600 40,000 4,000
Total 800,000 50,000 80,000
a. POHR (DLH) =

b. POHR (MH) =

c. POHR (Assembly) =

POHR (Finishing) =
 Budgeted FOH Costs (a) (b)
Budgeted Activity Base Assembly (5MH) - 50.00
Finishing (1 DL) 16.00 -
FOH per unit 16.00 50.00
16 /DLH Direct material 30.00 30.00
Direct labor 40.00 40.00
10 /MH Unit cost 86.00 120.00
Mark up 86.00 120.00

7.9 /MH Unit Selling Price 172.00 240.00

4.99 /DLH

Theoretical 100,000
Practical 80,000
Normal 75,000
Expected 90,000
Idle

Unit
Variable Constant
Fixed Changes - inve
 (c) Sales 172 240 228.98
39.50 -COS 86 120 114.49
4.99 GP 86 120 114.49
44.49 -Opex 100 100 100
30.00 NY -14 -1400 20 2000 14.49
40.00
114.49 5.51 5,510,000.00
114.49

228.98

10M
8M
7.5M

2.50

Total
Changes
Constant
Thermal Corporation has two producing department and two service
departments labeled P1, P2, S1, and S2, respectively. Direct costs for each
department and the proportion of services costs used by various
departments are as follows:

Cost Direct Proportion of services used by:

Center Costs S1 S2 P1 P2
P1 P90,000
P2 60,000
S1 20,000 - 0.80 0.10 0.10
S2 32,000 0.20 - 0.50 0.30

In calculating predetermined overhead rates, machine hours are used as

the base in P1 and direct labor hours as the base in P2.

P1 P2
Machine hours 50,000 40,000
Direct labor hours 40,000 20,000

Requirements:

1. Allocate the service department costs to operating departments and

compute the factory overhead rate for P1 and P2 using the following
methods:
a. Direct Method
b. Step method - start with S1
c. Algebraic method

2. Assume the company uses just one basis for applying overhead to jobs
going through both P1 and P2, compute the overhead rate using direct
labor hours as base.
DIRECT METHOD
P1 P2 S1 S2
OH Cost before allocation 90,000.00 60,000.00 20,000.00 32,000.00
Allocate S1 (1:1) 10,000.00 10,000.00 (20,000.00)
Allocate S2 (5:3) 20,000.00 12,000.00 (32,000.00)
OH Cost after allocation 120,000.00 82,000.00 - -
Divided by activity base 50,000.00 20,000.00
POH rate 2.40 4.10

per MH per DLH

STEP METHOD
P1 P2 S1 S2
OH Cost before allocation 90,000 60,000 20,000 32,000
Allocate S2 (5:3:2) 16,000 9,600 6,400 (32,000)
Allocate S1 (1:1) 13,200 13,200 (26,400)
OH Cost after allocation 119,200 82,800 - -
Divided by activity base 50,000 20,000
POH rate 2.38 4.14

per MH per DLH

S1 S2 S3 P1 P2
S1 / / /
S2 / / /
S3 / / / /
ALGEBRAIC/RECIPROCAL/SIMULTANEOUS METHOD
P1 P2 S1 S2 S1 =
OH Cost before allocation 90,000 60,000 20,000 32,000
Allocate S1 (1:1:8) 3,143 3,143 (31,429) 25,143 S2 =
Allocate S2 (5:3:2) 28,572 17,143 11,429 (57,143)
OH Cost after allocation 121,714 80,286 0 (0) By process of substitut
Divided by activity base 50,000 20,000 S1 =
POH rate 2.43 4.01

per MH per DLH S1 =

.84S1 =
0.84

S1 =
 20000 + .20S2

32000 + .80S1

By process of substitution:
20000 + .20(32000 + .80S1) S2 = 32000 + .80S1

20000 + 6400 + .16S1 S2 = 32000 + .80 (31,429)

26400 S2 = 32000 + 25143

0.84
S2 = 57,143
31,429