Exercises:

1. You are required to compute for the 2013 factory overhead rate of Bueno Manufacturers, Inc.
using each of the different bases form the following data:
Budgeted factory overhead P 480,000
Budgeted production volume 50,000 units
Budgeted materials cost P 300,000
Budgeted labor cost P 1,200,000
Budgeted labor hours 60,000 hours
Estimated machine hours 30,000 hours
SOLUTION:
FORMULA:
FOH RATE = ESTIMATED/ BUDGETED FACTORY OVERHEAD
ESTIMATED/ BUDGETED BASE

foh rate based on materials cost

foh rate = 480,000 / 300,000
foh rate = 160% of materials cost

foh rate based on labor cost

foh rate = 480,000 / 1,200,000
foh rate = 40% of labor cost

foh rate based on direct labor hours

foh rate = 480,000 / 1,200,000
foh rate = P 8/ direct labor hours

foh rate based on machine hours

foh rate = 480,000 / 30,000
foh rate = P 16/ machine hour

foh rate based on physical output

foh rate = 480,000 / 50,000
foh rate = P 9.6 per unit

2. As of December 31, 2013, the inventory of work in process of Bueno Manufacturers, Inc. (refer
to NO. 1 is in the form of job no. 12 which was started on in 2013. The prime costs and other
relevant data on this job are given below:
Job 12
Direct materials cost P 75,000
Direct labor cost P 25,000
No. of units 3,000
Labor hours 1,000
Machine hours 600
Required: Cost of work in process inventory using each of the factory overhead rates as arrived at
No. 1.
SOLUTION:

based on
direct direct factory total work in
materials labor overhead process
direct materials cost 75000 25000 120000 220000
direct labor cost 75000 25000 10000 110000
direct labor hours 75000 25000 8000 108000
machine hours 75000 25000 9600 109600
physical output 75000 25000 28800 128800
 3. Amargo Mfg. Co. produces two products, A and B. In computing for the overhead rate per unit,
the company assigns points to different factors such as the length of time required in processing
and differences in specifications. The following data are given for 2013:
Product A Product B
No. of points per unit 5 3
Estimated output 6,000 8,000
The budgeted factory overhead for 2013 is P 405,000.
Required: Factory overhead rate per unit.

SOLUTION:

Estimate
d points total estimated factory overhead per
Product quantity per unit points
point* product ** unit***
A 6,000 5 30000 7.5 225000 37.5
B 8,000 3 24000 7.5 180000 22.5
54000

*estimated foh per point = factory overhead / total points

Exercises 4 to 6 are a group of exercises pertaining to the same company, Golden Manufacturers,
Inc. They are aimed at training students to correlate different cost data while solving short
exercises.

4. Golden Manufacturers, Inc. applies factory overhead at P 8 per direct labor hour. Actual factory
overhead and actual labor hours for 2013 were P 470,500 and 58,000 hours, respectively. Normal
capacity is 60,000 hours.
Instructions:
a Compute for the factory overhead variance.
SOLUTION:
ACFOH 470,500
APPFOH (8*58,000) 464,000
FOH VARIANCE 6,500 UF
b Make the journal entries that relate to factory overhead in 2013.
SOLUTION:
To charge foh to production
Work in Process 464,000
Applied FOH 464,000
To record foh incurred
FOH control 470,500
Sundry credits 470,500
To close foh applied and control and to set up the variance
Applied FOH 464,000
FOH Variance 6,500
FOH Control 470,500
To close the variance to cost of goods sold:
Cost of goods sold 6,500
FOH variance 6,500
5. Analyze the factory overhead variance of Golden Manufacturers, Inc. based on the given in
Exercise 4.
ACFOH 470,500
BFOH (8*60,000) 480,000
SPENDING VARIANCE (9,500) F
BFOH 480,000
APPFOH (8*58,000) 464,000
IDLE CAPACITY VARIANCE 16,000 UF
6. Assume that the fixed factory overhead of Golden Manufacturers (exercise 4) amounts to P
120,000.
Required:
 a Variable factory overhead rate.
BFOH 480,000
LESS: FIXED FOH 120,000
VARIABLE FOH 360,000
DIVIDED BY 60,000 HOURS
VFOH RATE P 6.00
b Budget allowance based on actual capacity.
BAAC
Y = a + bx
Y = 120,000 + 7.2 (58,000)
Y = 120,000 + 348,000
Y = 468,000
c Spending variance.
ACFOH 470,500
BAAC 468,000
Spending variance 2,500 UF
d Idle capacity variance.
BAAC 468,000
APPFOH 464,000
IDLE CAPACITY V. 4,000 UF
e Alternative computation for spending and volume variance.
SPENDING VARIANCE
ACFOH– FFOH (470,500 – 120,000) 350,500
BAAC – FFOH (468,000 -120,000) 348,000
SPENDING VARIANCE 2,500 UF

IDLE CAPACITY VARIANCE

BUDGETED CAPACITY 60,000 HOURS
ACTUAL CAPACITY 58,000 HOURS
DIFFERENCE 2,000
FFOH RATE 2
IDLE CAPACITY VARIANCE 4,000 UF

7. Fixed and variable overhead rates of Subic Mfg. Co. are P 3 and P 5 per labor hour, respectively,
based on 40,000 budgeted labor hours. Budgeted capacity for 2013 is 20,000 units because two
(2) hours of labor are required to finish a unit of the product.
Subic Mfg. Co. produced 19,500 units in 38,200 hours and incurred P 306,200 of factory
overhead.
Required:
a Budgeted factory overhead for 2013.
BFOH = (8* 40,000 HOURS) = 320,000
b Budget allowance based on actual capacity for 2013
BAAC
Y = a + bx
Y = 120,000 + 5x
Y= 120,000 + 5 (38,200)
Y = 120,000 + 191,000
Y = 311,000
c Factory overhead variance
Acfoh P 306,200
Appfoh (8*38200) 305,600
Foh variance P 600
d Analysis of the overhead variance
Acfoh P 306,200
Baac 311,000
Spending variance P (4,800) F
Baac P 311,000
Appfoh 305,600
Continuance of Exercise 8. P 5,400 uf
9. Assume that the budgeted production and the corresponding labor hours are given as follows:
No. of units Labor hours
First quarter 4,000 x 2 = 8,000
 Second quarter 7,000 14,000
Third quarter 6,000 12,000
Fourth quarter 3,000 6,000
Actual labor hours and factory overhead incurred for the different quarters are as follows:
Actual labor hours Factory overhead incurred
First quarter 8,100 P 73,000
Second 12,900 95,500
Third quarter 11,300 80,500
Fourth quarter 5,900 57,200
Total 38,200 P 306,200
Instruction:
For each quarter, compute for the following:
a Factory overhead variance
b Budget allowance
c Spending variance
d Idle capacity variance

1st qtr 2nd qtr 3rd qtr 4th qtr total

acfoh 73,000.00 95,500.00 80,500.00 57,200.00 306,200.00

appfoh 64,800.00 103,200.00 90,400.00 47,200.00 305,600.00

foh variance 8,200.00 (7,700.00) (9,900.00) 10,000.00 600.00

acfoh 73,000.00 95,500.00 80,500.00 57,200.00 306,200.00

baac 70,500.00 94,500.00 86,500.00 59,500.00 311,000.00

spending variance 2,500.00 1,000.00 (6,000.00) (2,300.00) (4,800.00)

baac 70,500.00 94,500.00 86,500.00 59,500.00 311,000.00

appfoh 64,800.00 103,200.00 90,400.00 47,200.00 305,600.00

idle capacity
variance 5,700.00 (8,700.00) (3,900.00) 12,300.00 5,400.00

(9,900.0 10,000.0
FOH VARIANCE 8,200.00 -7,700 0) 0 600.00
BAAC = 120,000/4 +5X
BAAC = 30000 +5X

Supply the answer.

1. Job no. 629 was sold at a gross margin of 50% or for P 36,000. Its cost includes direct materials
of P 8,000 with factory overhead applied at 60% of direct labor cost. How much factory overhead
was charged to the job? P 6,000

Sales 36,000 150%

Cogs 24,000 100%
Gross margin 12,000 50%

Let x be direct labor

8,000 + x + 0.60 x = 24,000
1.6 x = 24,000 – 8,000
1.6x = 16,000
X = 10,000
Foh = 0.60 x
 Foh = .60 (10,000)
Foh = 6,000
2. The Amazon Manufacturing Co. uses the point system in charging overhead to its three products
because of variations in the nature of processing and other specifications. The following data are
given on the products:
Product A Product B Product C
Estimated output (units) 8,000 5,000 3,000
Assigned number of points 6 5 4
Budgeted factory overhead for the year is P 297,500.
The overhead rate per unit of each of the products must be: product A – 21 product b – 17.50
product c – 14

Estimate
d points total estimated factory overhead per
Product quantity per unit points
point* product ** unit***
A 8,000 6 48000 3.5 168000 21
B 5,000 5 25000 3.5 87500 17.5
C 3000 4 12000 3.5 42000 14
85000

*estimated foh per point = factory overhead / total points

estimated foh per point = 297,500/85,000
estimated foh per point = 3.5

**estimated foh per product = total points * est. Foh per point

***estimated foh per unit = est. Foh per product/ est quantity

3. Budgeted Factory Overhead for 2013 is P 400,000 based on normal capacity of 50,000 labor
hours. Fixed factory overhead is P 40,000. How much is the budget allowance on actual capacity
of 45,000 labor hours? P 364,000

Bfoh 400,000
Less ffoh 40,000
Vfoh 360,000
Divided by normal capacity 50,000
Vfoh rate 7.2

Y = a + bx
Y = 40,000 + 7.2 x
Y = 40,000 + 7.2 (45,000)
Y = 40,000 + 324,000
Y = 364,000
4. Assume that in no. 3 above, budgeted and actual capacities for the first quarter of 2013 were
10,000 and 9,000 labor hours, respectively. How much is the budget allowance for the quarter? P
74,800
Baac = 40000/4 +7.2 x
Y = 10,000 + 7.2 x
Y = 10,000 + 7.2 (9,000)
Y = 74,800
5. Factory overhead variance is under absorbed P 3,000 and spending variance is favourable P
2,000. Budget allowance on actual capacity is P 30,000. How much is applied factory overhead?
P 25,000
BAAC 30,000
Less: APPFOH 25,000
IDLE CAPACITY ( WORKBACK) 5,000 UF
SPENDING CAPACITY (2,000)
FOH VARIANCE 3,000
6. At 10,000 units of production, idle capacity variance is unfavourable P 4,500 while at 30,000
units, it is favourable P 1,500. The fixed cost rate based on normal units of production ought to
be? P .30
LET
X – budget capacity
Y – actual capacity
Z – fixed foh rate
1st equation
(x-y)z = 4,500
=(x-10,000) z = 4,500
= Xz-10,000z = 4,500
Z
= x – 10,000 = 4,500 /z
= x = 10,000 + 4,500
z

2nd equation
(x-y)z = (1,500)
(x-30,000) = (1,500)
Substitute the value of x on the first equation
(10,000 + 4,500/z – 30,000) z = (1,500)
= -20,000 z + 4,500 = (1,500)
= - 20,000z = (1,500)+(4,500)
= (20,000)z = (6,000)
20,000
= z = .30

7. Fixed and variable overhead rates are P 5 and P 8per unit of output (respectively) based on
budgeted production volume for 2013 of 60,000 units. The company produced 58,000 units and
incurred P 765,200 of factory overhead.
The unfavourable (favourable) spending and idle capacity variance must be: 1,200 and 10,000
respectively
Acfoh 765,200
Baac (5*60000+8*58,000) 764,000
Spending variance 1,200 uf

Baac 764,000
Appfoh (13*58,000) 754,000
Idle capacity variance 10,000 uf

8. The factory overhead rate is P 20 per direct labor hour. The company’s budget for 2013 shows
budgeted units of production of 30,000 with three (3) hours of labor required to finish a unit.
For 2013, the company produced 32,000 units expending 96,500 labor hours and incurring
P 1,863,300 of overhead. Budget allowance based on actual capacity is P 1,867,500 and idle
capacity variance is P 32,500.
What is the variable overhead rate? P 15
Budgeted capacity = 90,000 hours
Actual capacity 96,500 hours
Difference 6,500 hours
Fixed foh (workback) 5
Idle capacity variance 32,500

Total foh rate 20

Fixed foh rate 5
Variable foh rate 15
9. Factory overhead variance is over absorbed P 9,000. The factory overhead rate of P 10 per labor
hours was arrived at by using an estimated capacity of 20,000 labor hours. The fixed overhead
rate is P 3 per labor hour.
With utilized capacity equal to 18,900 labor hours, how much factory overhead must have been
incurred? P 180,000
Acfoh (workback) 180,000
Appfoh (10*18,900) 189,000
Foh variance (9,000)