CHAPTER 3 COST ACCOUNTING CYCLE 3.

Factory Overhead

 The objective of accounting is the Manufacturing Cost Flow

accumulation of financial information
that is useful in making economic
decision
 Financial Accounting focuses on
gathering information to be used in the
preparation of FS.
 Cost Accounting provides the
additional information required by mgt
and also provides data necessary for the
preparation of external FS.
MANUFACTURING INVENTORY ACCOUNTS
 Perpetual Inventory Approach
- The cost flow begins with costs being
incurred (cash payments, incurred
liabilities, fixed asset depreciation)
- Once incurred, they are recorded as
DM, DL and FOH
- As the resources are used up, the
company transfers its costs to the
WIP Inventory account
- When production is completed, costs
assigned to finished units are
transferred to the FG Inventory
account.

1. Material Inventory Name of the Company

- Balances of materials and supplies Cost of Goods Sold Statement
on hand For the year ended December xx, 2016

2. Work in Process Inventory Direct Materials used

- All manufacturing costs incurred and Materials, Beg. Inventory xx
assigned to products being produced Add: Purchase xx___
Total Available for use xx
- The issuance of materials production Less: Materials, Ending Inventory xx___
begins the production process Raw Materials Used xx
- DL earned by factory employees are Direct Labor xx
product cost Factory Overhead xx___
- OH cost are product cost and must Total Manufacturing Cost xx
be assigned to specific products Add: Work-in-Process, Beg. Inventory xx___
Total Work-in-Process xx
- When products are completed, their
Less: WIP, Ending Inventory xx___
costs no longer belong to WIP Cost of Good Manufactured xx
Add: Finished Goods, Beginning xx___
3. Finished Goods Inventory Total Goods Available xx
- Made up of the cost of products Less: Finished Good, Ending xx___
completed but not unsold as of that Cost of Goods Sold xx
date
- The amount of purchases
represents the cost of goods which FACTORY OH CONTROL
are acquired during the period of - To accumulate actual OH incurred
resale. - Not part of WIP

Elements of Manufacturing Cost FACTORY OH APPLIED

1. Direct Materials
2. Direct Labor
- To accumulate estimated FOH
applied to production, a
predetermined rate is used
- Part of WIP