Cost Ascounting Chapter 4: Accounting for Factory Overhead Sub topic: Multiple Overhead Rates by Rhieca Amadar

1. MULTIPLE
OVERHEAD RATES
- Is the manner of measuring product costs
- If normal costing is used, the company
may use different overhead rate.

2. Illustration:
Job costing using different cost drivers
Tiger Manufacturing Company accepted an order
from TJ Korona for 2,500 units of kitchen gadget
that is processed in three departments. The
following data related to the job are as follows:

3. Production
Department
Factory overhead:
Process 1
Process 2
Process 3
Direct Materials:
Process 1
Process 2
Process 3
Direct Labor
Rate
P45 per hour
P40 per hour
P35 per hour
Cost Driver
Rates
100% of direct
material cost
120% of direct labor
costs
P5 per machine hour
P620,000
250,000
100,000

4. Direct Labor Hours:
Process 1
Process 2
Process 3
Machine Hours:
Process 1
Process 2
Process 3
5,200
7,500
2,500
0
3,250
27,000
The order was complete as scheduled.

5. Required:
1. Determine the total costs of the job.
2. If Tiger Manufacturing Company’s policy is production cost plus
50%, how much is the total billing price of the job?
Solutions:
1. total costs of the job
Cost Element
Direct
Materials
Direct Labor
Overhead
Total costs
Process 1
P620,000
234,000
620,000
Process 2
250,000
300,000
360,000
Process 3
100,000
87,500
135,000
Total
970,000
621,500
1,115,000
P2,706,500

6. Applied overhead is computed as:
Process 1 (100% of DM costs = 620,000 x 100%)
P620,000
Process 2 (120% of DL costs = 120% x 300,000)
360,000
Process 3 (P5 per MH = P5 x 27,000)
135,000
Total overhead applied to the job
P1,115,000
2. Billed Price
= P2,706,500 x 150%