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  • Guerero, P.P. (2018) - Cost Accounting - Principles and Procedural Application. pp.493-557

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    Guerero, P.P. (2018). Cost accounting__principles and procedural application. pp.493-557

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    15 views33 pages

    Guerero, P.P. (2018) - Cost Accounting - Principles and Procedural Application. pp.493-557

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    liesly butic

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    © All Rights Reserved
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    of 33
    we cust Problem 128 Continued “The beginning inventories on June 1 ineluded the following costs ‘Molding Fnihing Devortmend —__Departnent Beir Deparsmant Cote © P 9.06360 Marae Pasio0e wa Later 222300 ces Overt i720 sist ‘Total Workin Proce, Juse 1 Pusisz — Puozanae Chapter 13 Cost of Production Report: Accounting for Spoiled Units and Increase in Production Required: 1. Prepare the oquivalent production computations for the Moding Department 42. Prepare the eauivalent production computations for the Fiaishiat Department Breparo a cst of production seport for the Molding Department Prepare cost of production report for the Finishing Departmen ‘Prepar josrnal etsis to record transfor of units from the Moldek Department t0 the Finishing Department ad from the Pinishisg Department 2 Fitabed Goria Inmony industries using process cst system, the manufacturing opera Fae ise quality control ofthe products boing manufactured To ensure panera fthene producta igi inpection of every unit i made before Petaet to customere Whon units are inspected in every department, poled unite ore detected. Se lg ae an aed Monaco oe Bo Ces ee a a Began ede eeheton te ea ce ee a secured. CLASSIFICATION OF SPOILAGE (LOST UNITS) ‘Moat of the opeilag is classified as normal spollage, because itis « ‘common occurrence thet ia inberent in the manufacturing process, ‘tvoidable and cannot be eliminated. Since they are an inherent part > the production process, normal spoilage are to be absorbed by the te ‘maining good units, On the other hand, abnormal spoilage results fom ‘wnusual and nonrecurring factors, euch as fre or water damage. Absa mal epoilage is avoidable end controllable. Costs of abnormal spol? fre computed from the coat of production. Lost units aze usta started in production, but never completed, In many cases the quantity of materials decreases, because of the manufacturing rocees and takes the fom of normally spoiled units. Losses that eat {from normal ‘ronta are referred tne normal loes unity and ‘hose ruling from nonrecurring and utupual events are called abnor mat toet unite, Both norma and abnormal lst writs must be identified find accounted for eo that er Unit of completed product { scounid fo hat tecet pleted produet will AScQueTng FOR ost wuss a Jost Ee nin or det ate fend of the manufse seth ce ga ela mie Spicer beau viata ea So rei suri eden eae Sopher sonoma as ae ca ie aan ee on or ec eaat rae met arte a a see Sect aa eae eee foci Sante eed hegeayrs metmoaet Sianeli Deriameen gre enone COMPREHENSIVE ILLUSTRATION ‘To illuateata the preparation of cost of production report with normal Jost units under the average and FIFO methods, the data of Star ter Company wil be used of Star Pape on ecg fr Soe Unto resection os AVERAGE METHOD LOST UNITS IN FIRST DEPARTMENT CUTTING DEPARTMENT - NORMAL LOST UNITS nttinal loos of unite ccc inthe Sak department, 20 special com- [piste egirdAmome ht Febru OTE the sce month ‘Operttons, tie Cutuing Department of Star Paper Company reports {har 00 unit are a's complete len Tig ove considered noroal nd Adsteied upon completion of the proces. The February cost end produc. ‘on data for the Cutting Department are presented below: Cont Data ‘The werk in process account - pet (bot loourced'by the Casting Department for 8 February os ‘egialng Workin Proce tung Deparisient shows the flowing i went of January and ‘ rag =a Bs a ated rear — a ns Sree : = nest ct Account Balance, February 28 Ree ee ee a ng in the reper son. Note the ne are reper om the lst in ofthe Quan- 7 Bee 200 noe monthly production report, Rieter. 2 Rom the eutine department rows the num! Aggie transferred out sof Production ‘Baullont Unter eetion note hatte lot unite are aetuned a ek i ne age fbr cope a Pa dee powts The computation of te | equivalent unita of production is ‘presented in the next page (Jilustration 18 ia aul Eo eee eee Atutroton 101 Basrotion 10-3 freee a Map reedceter Report Avecare fsiomees re Hermes : se... = We Pe Dexiine Pi oe ey pee eee lowes re) fee I Be Ta Vas Noma ae 200) Taig Wak Pre eon ‘= a = ane ote Itwtration 102 Bee amare = = cain tet a eas eta ae na mn eee ou “Materials Tab: Beginning ork in Prone ‘Tranaferred Out to NextDepartment ‘9,400 a + 1908 = 8.00 Feros Nae ing 3 tate lees = a ote ‘om sata’ eS ‘Transferred Out to Next Deparment. 9,400, oie Eee Workin Broses eedine siete) ou ‘yl Cons Acrued Por Sue BO ne cme ite, aire Ut for Tiss Tei sonal on oe gon Ee rhea ts st sae 3802 ~ s om 7 pa pe iad | ie Be BS Spe ay a Cost of Production Report - Cutting Department ‘The cst of production report under the average ct tethod ie prenentd sn the not page (llusrtin 13.5) atin Toa Gat Acotet 8 awit “The sot of prodtion report in Iustration 19-1 similar to the ogi February report in Ilutroion 11-3 Nota the following in connection wi dee unie "Inthe Quantity Schedule, all unite are included under Quant Be Aecounted for. ‘Te lose units are presented ‘Quantity Acsounted Por and given an equivalent pi ef the unite completed and transferred out Th the Cos Schedule, the cost of each eocteatogory in the beginning ‘workin pocees in addet usual with the cost incurred in thee ont month, Nota thatthe cost of Tost units lost units x total ane ‘oats in this department ie added to the cost ofthe units tran fut to next department. ‘The coat ofthe ending work in proces is the same, because tee unis didnot abeorb any cost ofthe Tost unite, Alternative Approach of Accounting for Lost Units 1 computing equivalent units of productions loat units may be ignated Not cntnting the equiaiont units for normal spelage decreases equ! Teat unite, resullng ina higher cost ofeach good unit. To llustrate Be fit of this approach let us ae only rest material costs, Wag caaoty Asc ro ‘Treated out om) a 9.400 ‘ankirproceas"Bnding(, 200% 100%) Sa +14n0 Contperoailens unit Fanta Pezesos Asignment of ors: i etd Ou 02820 P s90r ‘Mates (a0 x626029 — Biss Materiel Gita cnn For ovata ‘Wad his approach the ending war in proceas i being charged fo ‘gen the current perc, and willbe chargodtgain in the next posad ‘ion nepesionbckrn athe nia aw completed That tn Chee ya Wil be chavged Ewin for epallage. Such cost distortion does not corr [Them spole unit ar soni inthe computatton of eatvalont ety cause the cnt of normal solge tre anton f0 the good ais produced. Therefor, we wil mot tse this approach tn the Dreparation of Er of production Fopor wih anes 10ST UNITS IN SUBSEQUENT DEPARTMENT ASSEMBLING DEPARTMENT ~ NORMAL LOST UNITS When units are lost in departments fllowing-the Sst dopartment, the tampleted good unita must absorb not ony all ofthe eoste incurred in the faetent department in which the loss occur but alo the nocumulated Por department cocts."To illustrate the above procedures, assume that NGO unit were lost. The les is considered normal. Cost Data Dn februnry 28 che Work in Process - Assembling Department acoount Sows a balance of P4039), bofore transfers out to next department. This amount ts composed ofthe folowing Sgining Workin Proc (Be inter in From Pir Department (at ncuron ths Deparmcn Marais Sean a Fam hin Depart Sater or es Ler nie Overboad ‘wal Fearne Corts 429.621 aun Balance Febrasry 28 Pasa. 301 Fen Oa repr i povntd in Hustraton 18-4 the nxt ro ot Units of Productio sabato Pee unt of rodetion in ranted inthe ee ecration 105) ret eosin Rept Piet otsiites pr eh Anenbty Departmen is presented PSS amon 28 tustration 12-4 Besinine Started Froction= Cros Month ‘rated att Net Department ‘Workin roses “Ending Temata" Neal, Sone onion ing Workin Proce ‘Maer Mustration 12-5 Aeehly Depart ; Easel ter offen Computations Average ‘Tron n Cont ra Fri Deparment ee cele Per a pe ee or) tains aay sneer a Sea 3 eee, = ee = pole ec tea 2 Peptertoann oe a ao 4 eee! ss pr cae itincmns eee = eae os 3 a = 1) oan Re ae ‘oud Labor RAGES ones ‘etl Overhnd 88 avjetent Ue Eom + ‘te sa ere "The following details should be noted in the Cost Schedule of the eattet production report ofthe Assembly Department (llustration 19-6) * The total of eanaerred in oxsts from prior department, P280;250 i divided by the 10,70 total units In the beginning work in proces nd started in process or the equivalent unite (including lost wait) for an average transferred in from prior department Unit cost & Poraosia, + The ent of the lost unite (P20,701) is computed by multiplying te list uit of 450 by the total unit costs of P46.19509 (transferred is ‘eet ofP. £9296 pl the unit cost inthe current department Pisa, ‘Th cnt othe lost unite is again added tothe cost of the units tran ferred out tothe next departinent ‘a aternatve presentation ofthe effect of normal lost nits is vo aut the total unt ost om prior departinent and in the current departmest ‘Th ajunted total unico i then multiplied to the units completed ad leanaerred out fo compute the total costs of the ualts completed a8 ‘Wanaered out tthe ext dapartaient. This aleernative approach is ‘ested below: ‘TOTAL pQUIVALENT UNIT cosrscmepuL cost "UNI Costs (@ Cente punta. Grants hoon er Pas9.01 Pusat ‘ten fot st ete 2558 ‘ted ite Pa. (2) Trane OattoNet Dept Pea TS = Pas ss + contenant nts 4503 P46. 13508) P2076. Dislety tscampsed and ceretout Be20 ‘Adjutant Baasse8 [thor approach wil result nthe same total coate of the units tone feveed out tthe department Irs dcr od me rection | PACKAGING DEPARTMENT - ABNORMAL LOST UNITS Maen abnormal spoilage cocurs, the cost of the spoilage is computed as fnugh tho spoiled unite woro good unit. Such cost is recorded in a Loss ‘bm Alnormal Spoilage account, which ie presented ae a separate line fon in the Income tatersent Mpillsteato tho treatment of abnormal spoilage, assume that the Pack: feng Deparment experienced abnormal spoilage of 1,000 units, fost Data he cot data for che month of January and February for tho Packaging partment aro as follows: sig Workin Prose (oss Transfer In rom Prior Dap Prsa280 (ants in hn Deparment ‘Matrile ° aber 2200 Grestend oa eal Conte et Month 136590 ba Tis on: Get Traneforrd fn From Prior Dept Paar (hts thie Departs ‘atrial 2580 ater saeco Gretend ass tual Cone io Month Fad ate To Aout For JYonthly production and Equivalent Units of Production Computa- lens J Ftrury production report ilutraton 19-7) and equivalent unit Papuan’ aration 128) apn the ext page {ost of Production Report hs cost of production feport showing the prosontation of abnoraal lost ia ga prevented in the Next page (lustration 13-9). Iwi ie sng et ef nr tn 0s tustration 18:7 Iustration 13-9 Taye ee Monthy Froduction Report oar Petuy STS : Se ara ie caning Wn Pe —Dagning 2 TEEPE sun ORSE RSS PEER on i ee Sanna Saeed coe se) teats Werte eee is Keraaiot rs Soe amp of Ending Worn Proves ease 1 Teale Per Sau = 21 rosnscnsnore sere it SS ce Mustrotion 12-8 ‘Becaging Depart cae “Eeulalegt Production Computations Average MomibefFebrasry 2018 ‘Trane I Coste om Pir Darina “Nested Ost 0 imaned Gs Narn Freeot Ending (28 100%) inermal owt Uso 00%) asl Unit fr Tnere ln Cote sein ert "Team uted Gane Work infysen Hading (a 0%) ‘Abnorsa et nts 08x 008), toacBiae: Unt for Mates “Paufored Out toFnished Ged ‘Worin Pree“ Hoding a8020%) ‘Noor Let Unt 100100) ai oe Siecle. Nenintipes Hedin 8008 19 ‘Abnormal os Ue abe 00%) uiaont Unita forOvatad ‘etki ocean a ‘sternite Hogar Tabor: Ried es Moh ‘otal Lator Ovstuad: Reed ts Month Pooaee + sem - sums 06 ‘cnet [Note the folowing in the equivalent production computations and cost of production report for the Assembly Department, the last dopartment: + Tho abnormal lot unita are piven a 100 percent equivalent prodke: tion, beets they aze already completed as to materials, labor and overhead when discovered at the end of the process + Toth Quanity Schedule, the abnormal lost unite are presented sept rataly fom the good unis In the Coots to Be Azcounted for soction of the Cost Schedule, the nit conte are carried five decimal places to aveid the rounding & Tn the Gost Accounted For section, the cost ofthe abnormal lost usta ‘of P6,378 (100 x PB9,77601) in presented ae ceparate item from tht ‘ute of the good unita Such soe ie reorded by the following ent: {au fom Abnormal Spilge sara Bor ip Prey Pacing Department To chars he ct final elag te Rivcaune 5218 Se ee er recreate snes et ttt eo hee Ped at oo ae tt FIFO METHOD 409,750 ‘Tosllustate Us assunting fr let unite using the FIFO conting method the cat data, monly production par, eaten! Production compl tations and cat of protueton reports for Sta Peper Company in Che {2¢ 12 (with relief tect of poral and abnormal speilag) wil ‘be ued I all departivente, it asumed thatthe lst wlty are Seo ted athe end ofthe prsees whem all the Ul Ar8comploted alredy. fr Seed ed rae Prodcon (0ST UNITS IN THE FIRST DEPARTMENT CUTTING DEPARTMENT - NORMAL LOST UNITS Th coot da ‘adons and cect of production report for tho month of February are Stowe: fe — aac an = 28 = a or enone —- on ieee ae = ae Sots tase = So a entre = us Seperate an BB Eee . Sect ela re Covent HE new 3 Page ae “ia oS ‘monthly production report, equivalent production compu bye 8, is Mlustration 19-11 Caf Rt Acordia en nro 09 Mustration 13-12 ating Department FErTnG perartpyt Equivalent Production Computations FIFO festat Production to Monthofebraary 2018 rene = Moxrisie “Tranter Out Noxt Department: ‘Conpleson of Bopnning Workin Procan 3,760 0%)" ° Stared and onpiotd 0 Workin Proce ~ Ending (5,320 x 100%) a0 ‘ost Unita” Normal 200 100%) 200 Buivlnt Unite for Mera 30 "Transered Outi Next Deparement: Completeneteqianlog Workin Proc 760x60%)" name StartodandCuplted 5600 Workin roca Eng (220 45%) pias et Units Normal 0 10%)""| ‘0 Rauivalont Unite Labor te Orta a “ranferrod Osta Nex Department: Conplctoneftegnntog Wein Precen(9,760"45%)* 693 Baz Stared snd Compe seo Wook inProces Haig (9205550) 2p ont te" Noval 20 100nr= 300, ‘asivlot it for Overhead ss . ee Recetas af wor done this month ae Sie they are dasvered atthe end of the proce then they are 109% cpt at of Cope ag WP Pine Sk ‘arto mater abr and vere Sad eat bee PMS: Ha Cost of Production Report He ION NG areas, ot Sil oe Cansei pb real ne og em ‘ration 12.13) Piss + 9600 = eros 10 [Noto the following inthe cost of production report for the Cutting De partment using the FIFO method: + When assigning costs, the FIFO method keops the costs of the bei ‘ing workin process separate ant distinet from the costs of Wak done in the eutrent perind, + To'simplify computations under the FIFO method, lost units ar a founted for as if they were searted the current period. Although Some ofthe beginning work in process probably did spol, all spl ‘age is treated aa if came from the cuvzont production. "Thera the cost ofthe lost units is absorbed only by the units started and completed Alternative Method of Allocating Costs of Normal Lost Unite The cox of profatin in Mutation 1:12 wars the wit costs of the en period for assigning ets of normal spoilage eo the unite comp ‘fom beginning work in procesa ‘This method accumes that all nor ‘spalage traceable to the feginning Work in process was started and com Dleted during the curtnt period Ifthe FIFO method were used in its purest form, normal spoilage costs ‘would be apie botween the units started and completed during the et ent pero and the units complatod from the beginning work in proses routs bas on their aetual units ‘The Amal spoilage coats of P,206 Under thir approach is alleated follows ‘Bevin Work in Prose 60900 =P66 Pai Staredand Conleted 0 900 Pa 20 aa eat Pane ‘Under the Corts to be Assounted For soetion of the Cost Schadull the ‘cons of tho nite teanuforeed out will be shown below: ned Beginning WIP LOLS {oer Unit Normal 2370 Prezons Stated aot Compt Prssoxr ents Neral 3250 _6270 "otal Costa Tranafred Out Passa Either method will result in the same total costa of unite transferred out to peat department (Getting fr Soi Unto ee Predon Lost UNITS IN SUBSEQUENT DEPARTMENTS ASSEMBLY DEPARTMENT NORMAL LOST UNITS ost Data ‘Gon traneferved In fom Prie Department 28,190 (Cousin Current Department ‘Materials 1.89 Labor Sean Overhead E50 P 99.770 ‘ument Monts {Gone Tranefered In fom Drie Dparient 269,998 (ons in Carrone Department ‘Materials sass Grea 451890 ‘al Cots tn Account For Bericon Tustration 18-13 Asonly Department ee tee uo ot ne —Dgmnig F Sena ange ae eset tn < Recaieeae B cee ve os ‘s ete eat taco die ae ee age ts i a = =a ; pte Mlustration 13-14 ‘sembly Department ‘Equivalent Production Computations ‘Mint otFebraasy 2018 ‘Trager In Cats fom Prior Department: Sranlred On to Net Department ‘Complain a Boginnng Work in Procns (970 0%) ° Sanedand Completed 130 Wark in Paces Ending (100 100%) 10 tae” Normal 50x 100%) Euan Unit fr Tanatred tn Cota “Traalrrd Oat to Nort Deparment ‘Completion af Bepaning Workin Process 270 40%) 8 Started anf Compind 7380 ‘Wook in Pree Ending (100 88%) a ‘ont Units Norl 460 00%) ie rae Unit frMaerinle 200 Taal eanerced Out t2 Nox Deparet: ‘Salen of Bening Wak in Proce (970 40%) 8 ‘Sed and Complies 380 Werk nProcnoe Edie. 1005599 co oat Ute Neal 450100.) ro auivles Unit for Labor au "Tratatcred Out to Next Department ‘Completion of Bopnnng Wort in Proees 970 40%) ws Statedand Campiad ot Workin Frcs —Eading 100x564) ‘as ‘ae Unt” Navmal (450 100%) % quiet Unita foe Overboat 38, Coat of Production Repore ‘The cost of production report for the Assembly Department using the FIFO method is resetod in Mustration 1215 onthe NeXt pager stration 19-15 iho Fobrenry 2080" Werk in Bowe Ed aa lerscurun etn ee aetre asa ities ¢ iss = _hbezos Socata fat Sa a a som rare ERE AMET row @ lace are ‘75006 yay Coto Unie Tans Weta toa Be ‘90816 = 1100 x 2801468 Ose ae ge = wae x P zat Grebond ise > Gis Z souos et Cnt Aenaned FOF PACKAGING DEPARTMENT - ABNORMAL SPOILAGE or the month of February the cost data, monthly production report ad ‘equivalent production computations, and cost of production Feport tar er the FIFO method with abnormal spoilage are ae follows: | Cont Data ‘Begining Work in Proce “Gs Tranderedfafon ProrDepartmest P1280 (Costin thisDepartment Marie ° a {iki Pioqsoo reat Monah Geitecttinton x Denerimest Pe erst Deperement Pad anise Orerinad e886 _searet ‘el Gato Aout Poe ‘Reoeatt Monthly Production Report - FIFO Pek ghee Beg 2m ‘Tamiemet Oc Piasied ond a ‘rm Workin Pree “ogining amy Workin Proms elae = iS ‘Ascent ate ‘i Sag’ of Camplin: Tram in Cont Pcon® eat Maite o om Tater a ra rth im Es ep Pratcn apr ecu Sed Untandese i recion as IRO auivalent Production Computat “rf Te Costa fom Prior Deparment "Gompncon of Begining Werk in Pron (2.720 x0%) ° Soa pised end 4900 ‘Workin Process Ending (8205 100%) S80 ‘Rosormal tet Unite 100s 100%) “co guivalet Unit for Tranfored In Costs aso Meee Ost to Piiabed Gone: “EecpstonefBopnnine Workin Provo @.720x100%) 2.720 Stated and Conplond 00 Werk recess ing (2.620 0%) a ‘Rbonal Lost Unite QOD 100%). 00 gsivalent Uitafor Materials Zao “ranfered Outta Finiahod Gods Se ae eeinning WrkinProsss(2.72060%) 2378 ‘Stand and Compiecnd co Workin recess tae pe ry PMB Eo aR ona Ln tt on eProp Ann fi Sd Utne iron 52 Sehedule 1 (Computation and Allocation ofthe Cost of Normal Lost Units Rermal Lae Unie 000 wats om Fe Oepestaem 6.0 Pzr00 Seddied erent Deartceat acral 00s 2) P 3010 Cover Cos :200 P12) 4 sao ‘eal tof Neral Lent Unite Bo Atco en ma | ‘its aa“ | Gane one aso) ak Pasae | Bai Eeane wir me im “te oad 0 am Fane Raia ar ee a ist Skate erst Satna a Fe nmr a te titi ‘stage of completion of spoiled units therefore depends upon when inspection takes place and bow costs are added to production. In the Assembly Department, since inspection was at the end of the Frontal ra lea or oeeepisiaattn Cue bd coma'a a _als 2nd conversion costs and therefore should be given & 100% equiva secre IPT nom 2 el cael in ed Secale Der tne Rell eae Senet fats Malco HESS hares Gare tt Soil HESS Sen ine See a ey Beal uae te Roti oat en fe SSUES TE meee Bs ee SEENUNE GS ts Rectum ti soe one ERPS ann me wn oft atin EE, eect ie ee sale a oe rei eaten ot Ge ete Sioshsathces eed era ereetieae sa SSS See ee mi ne a + In the Finishing Department, inapection oocurred at 40% stage tmplction and the ending inventory was 60% sormplete aa to ei ‘orsion cots Since the ending work in process inventory has passed the inspection point, cost of normal lost unite should be allocated both the ending work in process and units transforred out przia ‘on the basis of their actual units. The computation and allovation the cost of normal lost units ia presentod in Schedule 1. Tho stagect fomplation of conversion asta, not materials is used to deteraine Whether ending work in procots inventory was inspected ‘Tho cost of abnormal lost unites computed teparataly. ACCOUNTING FOR INCREASE IN UNITS 1 most manufacturing operations all ect materials needed for tn Ahetion are putin prone in the brat procrcng department, while elk Secwonedepartmonts goneraly add ssc labor and overhead (cnn son cats only However, some manufacturing operations require ta ‘Aisin of materials in subsequent departments. The ion of mat Alsin the later departments andthe farther processing ofthe poli ‘eunlly reel ina neenue inthe number of phys Hit ‘Won there isan increase of units during production, the total costs it ‘ptead asin the larger nome of waits to produce lower syorage unt costo. The allowing example ilusteatas how most cOmPaniey yegunt increas in unite of produc. 2a Oe Se Se es a ERR are mabe hen pe ce fai Rng meg ree eo oc fe beni fe sig ede te oe Reuaneereriite borers: ‘ast tat, mol odin report the eile rod

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