Question

Schneider, Inc. had the following information relating to 2011.

            Budgeted FOH                                      P74, 800

            Actual FOH                                          P78, 300

            Applied FOH                                        P76, 500

            Estimated labor hours                            P44, 000

Required:  if Schneider decides to use the actual results from 2011 to determine the 2012 overhead rate, what will the 2012 overhead rate be?

PROBLEM 4

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

Cost Center	Direct Costs	Proportion of services used by:
		S1	S2	P1	P2
P1	P100, 000
P2	P50, 000
S1	P15, 000	-	60%	30%	10%
S2	P25, 000	10%	-	50%	40%

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:

Allocate the service department costs to operating departments and compute the factory overhead rate for P1 and P2 using the following methods:

1. Direct method
2. Step method – start with S1
3. Algebraic method

Answer 1

Overhead rate = P1.74 per labor hours
Based on Budgeted
Predetermined overhead rate =	Budgeted FOH/ Estimated labor hours
	74,800/44,000
	1.70
Applied FOH =	Predetermined overhead rate × actual labor hours
76,500 =	1.70 × actual hours
Actual hours =	45,000
Based on Actual
Predetermined overhead rate =	Actual FOH/Actual labor hours
	78,300/45,000
	1.74