CHAPTER 1: COST ACCOUNTING -

TYPES OF COST SYSTEM

BASIC CONCEPTS AND THE JOB 1. JOB ORDER COST SYSTEM
ORDER COST CYCLE – for not homogenous products.
– for special; custom-made products.
MANUFACTURING COSTS
2. PROCESS COST SYSTEM
DIRECT MATERIALS – kung ano yung – being used in homogenous.
pinakadominant or yung physically kita sa isang – same same lang walang change.
product (clothes, leather, wood, metal, plastic) – constant lang ang process ng factory.

DIRECT LABOR – person who touches direct 3. DUAL SYSTEMS

materials (who cut, paste, paint, etc) – combination.
Example: wages of factory workers – Cost ng customer’s order ay Job order cost system
ang susundan.
MANUFACTURING OVERHEAD – too immaterial to – Cost ng parts ay process cost system ang susundan.
count
 Not directly involved in the product ----------------------------------------------------------------------
Example: maintenance workers, supervisors, etc
ꙮ INDIRECT MATERIALS – factory supplies or INTRODUCTION TO THE JOB ORDER COST CYCLE
operating supplies (Normal cycling)
ꙮ INDIRECT LABOR – wages of factory workers
who do not work directly on the product. 1. PROCUREMENT – materials and supplies
(maintenance workers | supervisors | delivery truck are needed for manufacturing are ordered,
driver | assembly line workers) received and stored.
ꙮ OTHER M.O.H. – payroll taxes, depreciation of
machinery; equipment and building, rent taxes and 2. PRODUCTION – materials are transferred
insurance of factory building and machinery, factory from storeroom to factory.
utilities
3. WAREHOUSING – finished goods are moved
PRIME COST = Direct material + Direct labor from factory to warehouse.

CONVERSATION COST = Direct labor + 4. SELLING – sales are recorded in the books.
Manufacturing overhead
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JOURNAL ENTRIES RELATING TO MANUFACTURING
INVENTORIES OF A MANUFACTURING CONCERN
MATERIALS NEEDED ARE PURCHASED ON ACCOUNT.
RAW MATERIALS – cost of raw materials and factory Materials **
supplies Accounts payable **
#
WORK IN PROCESS INVENTORY – cost of raw MATERIALS WERE ISSUED AND REQUESTED IN
materials used, direct labor and M.O.H. costs PRODUCTION.
incurred. Work in process (DM) **
Factory overhead (IDM) **
FINISHED GOODS INVENTORY – cost of goods which Materials **
have been completed, ready and available for sale. #
INCURRED WAGES AND SALARIES.
---------------------------------------------------------------------- Payroll **
Wages payable **
SYSTEM OF COST ACCUMULATION #
NAGBAYAD NG WAGES AND SALARIES.
1. ACTUAL COST SYSTEM Wages payable **
– record F.O.H. as they are actually incurred, after Cash **
palang ng sale. #
– kung magkano mo talaga binili ang raw material. NIRELEASE NA ANG PAYROLL SA EMPLOYEES: PARA
MAIDENTIFY KUNG KANINO ANG PARA KANINO.
2. STANDARD COST SYSTEM Work in process (DL) **
– predetermined amounts from analysis and Factory overhead (IDL) **
forecasts made kahit di pa nag uumpisa ang Payroll **
production. #
DEPRECIATION EXPENSE NG BUILDING (nakarecord
3. NORMAL COST SYSTEM sa building title par direct ng ibiniwas ang
– combination depreciation expense)
– Actual C.S. ng direct material. Factory overhead (Bldg.) **
– Standard C.S. ng direct labor. Selling & Administrative (Bldg.) **
Accumulated Depreciation **
---------------------------------------------------------------------- #
DEPRECIATION EXPENSE NG EQUIPMENT, documentary evidences have been supplied
MACHINES, ETC. by other departments.
Factory overhead (Machines, Equi) ** 5. CASH DEPARTMENT – This department
Accumulated Depreciation ** pays all invoices after approval by the
# accounting department.
EXPENSES INCURRED FOR THE MONTH.
Factory overhead (utilities) ** PURCHASING AGENT – This person must buy
Selling & Administrative (utilities) ** materials in correct quantities, at the proper time
Accounts payable ** and at the lowest price.
#
RENT INCURRED (KUNG MERON) ----------------------------------------------------------------------
Selling & administrative expense **
Accounts payable ** REORDER POINT – The frequency at which the
# ** materials is used.
TO CLOSE FACTORY OVERHED:
Work in process ** REORDER POINT = (Daily usage x Lead time) +
Factory overhead ** Safety stock
#
BABAWASAN ANG WORK-IN-PROCESS  LEAD TIME – length of time it takes for the
Finished goods ** material to be delivered from the supplier
Work in process ** after an order has been placed.
#
SALE OF FINISHED GOODS (assuming on accounts)  SAFETY STOCK – Minimum level of
Work in process (DM) ** materials that should be maintained to
Factory overhead (IDM) ** ensure that the company does not run out
Materials ** of materials.
#
RECOGNIZE EXPENSE ON INVENTORY (finished goods SAFETY STOCK = (Maximum daily usage x
na nabenta) Maximum lead time) – (Average daily usage x
Cost of goods sold ** Average lead time)
Finished goods **
# ----------------------------------------------------------------------

COLLECTION NG RECEIVABLES GALING SA BENTA ECONOMIC ORDER QUANTITY – It should reflect the
Cash ** quantity necessary to get the best price while
Accounts receivable ** keeping an inventory at an appropriate level to
# ensure uninterrupted production.
PAYMENT NG MGA LOAN INCURRED
Accounts payable ** 2 ( AD ) x OC
Cash ** ¿
#
CC

----------------------------------------------------------------------  AD (Annual Demand

 OC (Ordering Cost) – includes
PURCHASING MATERIALS transportation cost.
 CC (Carrying cost) – cost for keeping
MATERIALS CONTROL – Rigid controls over raw inventory in storage.
materials are necessary not only to guard against
theft but also to minimize waste and misuse of ----------------------------------------------------------------------
excessive inventories, over issuance, deterioration,
spoilage and obsolescence of materials. PURCHASE REQUISITION – requesting the materials
to be ordered
ORGANIZATION FOR CONTROL
1. PURCHASING DEPARTMENT – responsible PURCHASE ORDER – when the purchasing
for placing orders for materials with reliable department receives the purchase requisition,
suppliers, at the right time and at a right source of supply must be selected.
place.  Contracts for quantities to be delivered.

2. RECEIVING DEPARTMENT – responsible for RECEIVING REPORT – materials are received by the
the inspection of the incoming shipments receiving clerk from the supplier.
and verification of the quantities received  Certifies quantities received and reports
on order. results of inspection and testing.77

3. STOREROOM (STOCKROOM) – responsible  RECEIVING CLERK – responsible for

for protecting materials against physical
deterioration and ensuring that stocks are
properly issued.
4. ACCOUNTING DEPARTMENT – records all
transactions in the accounts after
unpacking them, checking quantities and
transferring them to storeroom.
COMPARING DOCUMENTS – When the invoice is
received from the supplier, it is sent to the
purchasing department.
RECORDING THE VOUCHER – When the voucher and
supporting documents reach the accounting
department, the voucher clerk checks all the
documents if they are properly approved and signed.

PAYING THE VOUCHER – before the due date, the

voucher is removed from the unpaid vouchers file.

BILL OF MATERIALS – list of materials requirements

for each step in the production sequence.

DEBIT MEMORANDUM – is a notice to the vendor of

a deduction from the invoice for the cost of the
returned materials.

CREDIT MEMORANDUM – if there is an excess order

of materials that are not yet needed, they are
retained for future use and the materials have not
been included in the supplier’s invoice.

CONTROL PROCEDURES
 ORDER CYCLING – materials are reviewed
on a regular cycle, and orders are placed to
maintain a desired inventory level.
 MIN-MAX METHOD – minimum and
maximum inventory levels are determined.
Reordering is done when the minimum
level is reached.
 TWO-BIN METHOD – When the first bin is
empty, an order is placed.
 ABC PLAN – this is used with a variety of
items having different values.
A ITEMS – most expensive items
B TEMS – moderately priced items
C ITEMS – inexpensive items
 AUTOMATIC ORDER SYSTEM – An order is
automatically placed when the inventory
reaches a predetermined level.