Sample Problem no.

, applying P400,000 of overhead to products X and Y on the basis of direct labor hours.
The firm is considering a shift to activity-based costing and the creation of individual cost
pools that will use direct labor hours (DLH), production setups (SU), and number of parts
components (PC) as cost drivers. Data on the cost pools and respective driver volumes
follow.

Pool No. 1 Pool No. 2 Pool No. 3

Product (Driver: DLH) (Driver: SU) (Driver: PC)
X 600 30 1,500
Y 50 1,000
1,400

Pool
P80,000 P140,000 P180,000
Cost

Questions:
1. The overhead cost allocated to product X by using:
a. activity-based costing procedures
b. traditional costing procedures
2. The overhead cost allocated to product Y by using activity-based costing procedures?
a. activity-based costing procedures
b. traditional costing procedures

Sample Problem no. 2

Vinnie Morelli Corporation has the following overhead costs and cost drivers. Direct labor
hours are estimated at 100,000 for the year.

Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity

Ordering and Receiving Orders P 120,000 500 orders

Machine Setup Setups 297,000 450 setups

Machining Machine hours 1,500,000 125,000 MH

Assembly Parts 1,200,000 1,000,000 parts

Inspection Inspections 300,000 500 inspections

Questions:
1. If overhead is applied using traditional costing based on direct labor hours, the
overhead application rate is
2. If overhead is applied using activity-based costing, the overhead application rate for
ordering and receiving is
Sample Problem no. 3

Kelly and Logan, an accounting firm, provides consulting and tax planning services. A
recent analysis found that 65% of the firm's billable hours to clients resulted from tax
planning and for many years, the firm's total administrative cost (currently P250,000) has
been allocated to services on this basis.

The firm, contemplating a change to activity-based costing, has identified three components
of administrative cost, as follows:

Staff support P180,000

In-house computing charges 50,000
Miscellaneous office costs 20,000
Total P250,000

A recent analysis of staff support found a strong correlation with the number of clients
served (consulting, 20; tax planning, 60). In contrast, in-house computing and
miscellaneous office cost varied directly with the number of computer hours logged and
number of client transactions, respectively. Consulting consumed 30% of the firm's
computer hours and had 20% of the total client transactions.

Questions:
1. Assuming the use of activity-based costing, the proper percentage to use in
allocating staff support costs to tax planning services is
2. If Kelly and Logan switched from its current accounting method to an activity-based
costing system, the amount of administrative cost chargeable to consulting services
would

Sample Problem no. 4

Donkey Company manufactures two products, Standard and DeLuxe. Donkey’s overhead
costs consist of machining, P2,000,000; and assembling, P1,000,000. Information on the
two products is:
Standard DeLuxe
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000

Questions:
1. Overhead applied to Standard using:
a. activity-based costing procedures
b. traditional costing procedures
2. Overhead applied to DeLuxe using:
a. activity-based costing procedures
b. traditional costing procedures