PAMANTASAN NG LUNGSOD NG VALENZUELA

JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

ATE-KUYA SYSTEM 2019: COST ACCOUNTING

PROCESS COSTING
- accumulating costs of production by departments or cost center
- used in oil refining, chemical processing and food processing businesses
- allocation of manufacturing costs in every department to calculate the unit cost of product for
profit determination and inventory costing purposes

PROCESS VS. JOB ORDER

Similarities
1. Manufacturing cost Elements - DM , DL and FOH
2. Accumulation of Costs - all RM purchased are debited to Materials account. DL are debited
to Factory Payroll Account and all actual FOH are debited to FOH Control account
3. Flow of Cost - WIP, FG , COGS

Differences
1. Number of WIP account used - JO is one WIP while PC has multiple WIP account
2. Point at which total costs is determined - JOC, total costs are computed when job is
completed while PC compute TC at EOM while the units are being processed.
3. Unit costs computation - JOC, unit cost is determined by dividing the TC divided by units
while PC, Unit cost is equal to TMC/ units produced during the period.

ACCUMULATION OF COSTS BY DEPARTMENT

1. Units completed in one department are transferred to the next department with corresponding
cost.
2. Completed one unit of department becomes RM of the next department until the units are
converted into final products
3. Output of DEPT 1 = Input of DEPT 2 w/ corresponding cost
4. Finished Goods of Department 2 = received from department 1 + incurred by Department 2
5. Cost increases as the unit moves to other departments.

Production Report
-shows the number of units started during the month, number of units transferred out by the
department during the month, number of units still in WIP at the end of the month and
percentage of Completion still in process at the end of the month.

Cost of Production Report

- document used by the management to understand and evaluate the operations of a department
because it shows the flow of units as well as the flows of costs related to the department.
-summarizes cost incurred in the department, average cost per unit of the product, total cost of
products completed and transferred out of the department, and the costs related to the ending
inventor of WIP in each department.

ILLUSTRATIVE EXAMPLE #1
Star Paper Company manufactures high quality paper boxes in three departments: Cutting
Department, Assembly Department, and Packaging Department.
 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS
ATE-KUYA SYSTEM 2019: COST ACCOUNTING

Data for Star Paper Company are as follows:

Departments incurred the following costs during the first month:
Cutting Dept. Assembly Dept. Packaging Dept.
DM 77 280 21 830 2 172
DL 95 616 82 954 24 492
FOH 156 632 69 856 14 596
Production Report is presented to you and the following facts are as follows
Cutting Dept. Assembly Dept. Packaging Dept.
Beg 12 880 9 120 8 150
Transferred 9 120 8 150 5 430
WIP, End 3 760 970 2 720
Materials 100% 60% 0%
Labor 40% 60% 20%
Overhead 55% 60% 15%
Requirements:
1. Compute the Equivalent Units of Production for each department.
2. Prepare a Cost of Production report for each department.
3. Prepare the Journal entry for each department.
4. Assume that 5,200 units were sold during January for P 80.00. What is the Journal Entry to
record the sale and the Cost of Goods sold.

NORMAL AND ABNORMAL LOSSES

- Normal lost is accounted as product cost while cost of abnormal losses are charged to period
cost debited to FOH Control.

a. Cost of normal lost is charged to (a) Completed units and units in process, end when
1. Discovered at the Beginning of the process (Continuous loss)
2. Discovered during the process and no QC is indicted (Continuous loss)
3. Discovered upon inspection and units in process at the end have at least reached the inspection
point. (Discrete Loss)

Procedure for a-1 and a-2

a. Do not assign work done to the lost units
b. Adjust the unit cost from the preceding department due to decreased number of units
c. above procedures automatically charged the cost of normal lost units to both completed units
and units in process at the end.

Procedure for a-3

a. Assign work done to the lost units
b. No need to adjust the unit cost from the preceding department despite the lost units
c. Calculate the cost of EUP for lost units and prorate to completed units and units in process at
the end using whole or equivalent under the same classification as the costs to be allocated.

B. Cost of normal lost units is charged to completed units only when.

1. Discovered at the end of the process
2. Discovered upon inspection and the units in process at the end have not yet reached the
inspection.
 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS
ATE-KUYA SYSTEM 2019: COST ACCOUNTING

Procedure for B-1 and B-2

1. Assign work done to the lost units.
2. No need to adjust the units - cost from the preceding department despite the lost units.
3. Calculate the cost of lost units and charge the additional cost of completed units.

C. Cost of abnormal lost is charged and abnormal loss and debited to FOH control as a
period cost.
1. if discovered at the Beg. Of the process, no need to assign work done. Any cost from the
preceding department is charged as abnormal loss.
2. If discovered at any point other than (1), assigned work done and the cost to FOH control.

ILLUSTRATIVE PROBLEM #2
Woodrose corporation produces a product in two departments A and B. August Data are as
follows:
UNITS
Received from Department A 50 000
Completed and Transferred to warehouse 40 000
In Process, Aug 31 (60% complete) 5 000
Lost During the month 5 000
COSTS
From Department A 225 000
Materials 135 000
Labor 103 200
Factory Overhead 103 200
Department adds all materials at the beginning of process.
Requirements: Prepare cost of production report and journal entries for the following scenario if
the lost occurs and classifies as:
1. Normal, Beginning of the process
2. Normal, End of the process
3. Abnormal, End of Process

ILLUSTRATIVE EXAMPLE #3
ALET Corporation uses process costing. In Department #2 CC are incurred uniformly
throughout the process. Materials are added 30% at the start of the process and 70% following
the inspection which occurs at 90% stage of completion. Normal Spoilage is discovered during
the inspection and is expected to be 5% of good units. The following are information relates to
dept 2 .
UNITS
Transferred In 12 000
Completed and Transferred Out 9 000
Units in Process(30% Incomplete) 2 000
COSTS
Cost added in the department 19 800
Materials 45 200
Cost Received 84 000
Requirement: Prepare a Cost of Production Report and prepare Journal entries
 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS
ATE-KUYA SYSTEM 2019: COST ACCOUNTING

ILLUSTRATIVE EXAMPLE #4
Maxine Corporation uses process costing in its two producing departments. In department 2,
inspection takes place at the 70% stage of completion, after which materials are added to good
units. A spoilage rate of 5 % of good units is considered normal. Materials are added 30% at the
start of the process and 70% following inspection.
UNITS
Received from Department 1 12 000
Completed and Transferred 9 000
In process, end (90% Complete) 2 000
COSTS
Materials 22 600
CC 46 000
REQUIREMENT: Prepare a Cost of Production Report and prepare a journal entry.

INCREASE IN UNITS DUE TO ADDITION OF MATERIALS

- Adjustment shall be made in the unit cost of preceding department.

LOST UNITS
a. Normal, Discovered at the beginning of the process
=Cost from preceding Dept / Units Received - lost units

b. Normal, Discovered at the end of the process or Abnormal

=Cost from preceding Dept / Units Received
Illustrative Example #5
Seashore Company produces a product which requires processing In the departments. In the
second department, materials are added at the beginning, increasing the units received by 20%.
The following data pertain to the operations of Dept 2.
Units received from dept 1. 50 000 units
Units completed and transferred 45 000 units
Units in process, end 15 000 units
Stage of Completion 80 percent
Cost from Department 1 600 000
Cost added in the department
Materials 240 000
Labor 171 000
Overhead 114 000
REQUIREMENT: Prepare a Cost of Production Report and prepare a journal entry.