ACCOUNTING FOR MANUFACTURING COST USING PERPETUAL SYSTEM

ALTERNATIVE 1 (WIP recorded ALTERNATIVE 2 (WIP recorded as

as assets) expenses)
1. To record raw material Raw material inventory 1.000 Raw material inventory 1.000
purchase on cash Cash 1.000 Cash 1.000
2. To record direct raw Work In Process (WIP) WIP –DRMC 800
material usage Inventory 800 Raw Material Inventory 800
(DRMC) Raw material inventory 800
3. To record the direct Payroll 700 Payroll 700
labor cost payment Cash 700 Cash 700
4. To assign the DLC to WIP Inventory 700 WIP – DLC 700
product Payroll 700 Payroll 700
5. To record the applied WIP Inventory 500 WIP – FOH 500
FOH FOH 500 FOH – Applied 500
(assume that FOH Applied FOH = actual capacity x
rate Rp 10 per MH, FOH rate
and 50 actual = 50 MH x $ 10
machine hours /MH) = $ 500
FOH Rate = Budgeted
FOH / Normal
Capacity = 600 / 60
MH = $ 10 per MH
6. To record the actual FOH 550 FOH Control (actual) 550
FOH, assume that it Any credited accounts 550 Any credited accounts 550
was $ 550
7. To close the FOH FOH variance (UF) 50 FOH – Applied 500
account FOH 50 FOH variance (UF) 50
Applied FOH $ 500 FOH – Control 550
Actual FOH 550
FOH Variance (under-
Applied) – Unfavorable $ 50

8. To close the FOH Assuming that it is not

variance significant, the entry will be:
If FOH variance is COGS 50 COGS 50
significant, variance FOH variance 50 FOH variance 50
will be closed to WIP
Inventory, FG
inventory, and cost of
goods sold; if FOH
variance is not
significant, variance
can be closed directly
to cost of goods sold
9. To record units Finished Good Inventory 1.600 FG Inventory 1.600
completed WIP Inventory 1.600 WIP – DRMC 600
(assuming that WIP – DLC 525
ending WIP inventory WIP – FOH 475
consists of DRMC $
200, DLC $ 175, and
 FOH $ 25.
10. To Record the ending No Entry WIP Inventory 400
WIP Inventory WIP – DRMC 200
WIP – DLC 175
WIP – FOH 25
11. Reversing entries No Entry WIP – DRMC 200
WIP – DLC 175
WIP – FOH 25
WIP Inventory 400