Cost Accounting UEMLA

National University Cost Accounting & Cost Management
Accounting for Material

University of the East – Manila
Cost Accounting – Review Class
Cost Accounting Cycle

The objective of accounting, in general, is the accumulation of financial information that is useful in making
economic decisions. Financial accounting focuses on the gathering of information to be used in the preparation of
financial statements that meet the needs of investors, creditors, and other external users of financial information.
Although these financial statements are useful to management as well as external users, additional reports, schedules,
and analyses are required for internal use in planning and controlling. Cost accounting provides the additional
information required by the management, and also provides data necessary for the preparation of external financial
statement1.
Manufacturing Inventory Accounts

Most manufacturing companies use the perpetual inventory approach. The lecture follows the major book
benchmark that the rest of the handout will assume that the company uses the perpetual inventory system unless the
circumstances indicated otherwise. Under manufacturing firm the accounting for inventories uses not only one account
but instead deals with three (3) account: Material inventory account (Materials); Work in Process inventory account
(Work In Process or WIP); and Finished Goods inventory account (Finished Goods).
Materials Inventory
The Material inventory account (Materials Inventory Control account) is made up of the balances of materials
and supplies on hand. Materials, are usually not purchased for resale but for use in manufacturing product. Therefore,
an item taken out of Materials Inventory and requisitioned into production is transferred to the Work in process
inventory account.
Work in Process Inventory

All manufacturing costs incurred and assigned to products being produced are classified as Work in Process
inventory costs. WIP inventory is vital in manufacturing accounting, the various costs that become part of WIP and the
way costs are transferred out of the account. The issuance of materials begins the production process. All of costs
pertaining said materials are manufacturing cost elements (product costs), and all of them enter into accounting for
WIP inventory. Direct labor earned by factory employees are also product costs. Since these individuals work on
specific products, their labor costs are assigned to those products by including the labor peso earned as part of WIP
inventory. Overhead costs are product costs and must be assigned to specific products. Thus , they, too are included
in the WIP inventory account. Factory Overhead Control (applied) are costs assigned to products by using an overhead
rate (predetermined overhead rate or predetermined factory overhear rate). As the product complete, they are put into
the finished goods storage area. These products now have materials, direct labor, and factory overhead costs assigned
to them. Then the product completed, their cost no longer belong to work in process. Therefore, when completed
products are sent to the storage area, their costs are transferred from WIP inventory account to the Finished Goods
inventory account.
Finished Goods Inventory

The Finished Goods inventory account, like materials account, has same characteristics of Merchandise Inventory
account (perpetual inventory system if default)
Statement of Cost of Good Manufacture and Sold (A distinction between a Merchandising and
Manufacturing entity)
In Schedule format
Manufacturing Entity Merchandising Entity

Beginning Raw Materials Inventory Balance P XX Beginning Merchandise Inventory Balance P XX
Add: Purchases* P XX Add/Plus: Purchases* (Merchandise) P XX
Total Raw Materials Available for use P XX Merchandise Available for Sale P XX
Less: Ending Raw Materials Inventory P XX Less/Deduct: Ending Merchandise Inventory P XX
Direct Materials Used** (DMU) P XX Cost of Goods Sold P XX
Direct Labor P XX
Factory Overhead*** P XX
Total Manufacturing Costs (TMC) P XX
Add: Beginning Work In Process Inventory P XX
Total Goods put into Process (TGP) P XX
Less: Ending Work In Process Inventory P XX
Costs of Goods Manufactured (CGM) P XX
Add: Beginning Finished Goods Inventory P XX
Total Goods Available for Sale (TGAS) P XX
Less: Ending Finished Goods Inventory P XX
Costs of Goods Sold @ Normal**** P XX
Add/Less: Under/Over Applied FOH***** P XX
Cost of Goods Sold @ Actual P XX
*The Purchases treated same with the concept of Inventories topic under Financial Accounting as to freight cost,
discount, return and allowance, presented below is the formula in getting Net Purchases.
Purchases P XX
1Cost Accounting 2014 Edition by Guillermo M. De Leon Jr., and Norma D. Deleon
Accounting Instructor: Melziel Andag Emba
Add: Freight-in P XX
Less: Purchase Discount P XX
Less: Purchase Return and Allowances P XX
Net Purchases P XX
**Raw Materials somehow before use in the production under goes a simple or initial process before it will be used for
production, such costs of simple or initial costs must consider, the instructor believe that such cost will form part of
manufacturing factory overhead.
***The Manufacturing Factory Overhear or Factory Overhead (FOH) maybe an Actual FOH or Applied (FOH –
Predetermined rate) Actual FOH is the actual costs incurred of Factory Overhead, the Applied FOH is a predetermined
Overhead rate computed from budgeted (the other author of cost accounting books considered prior experience of the
company, but the instructor believe that incase the budget was available use the budget in getting the predetermined
overhead rate since the formula was discussed in the ABC Costing but will be discuss further as to the topic of
Accounting for FOH, if the budget amount was not available used the historical data as it is the prior experience of the
company).
****In Cost Accounting we consider the Actual Costing, the Normal Costing and the Standard Costing, to wit:
Actual Normal Costing Standard
Costing Costing
Direct Materials Used Actual Actual Standard
Direct Labor Actual Actual Standard
Factory Overhead Actual Applied Standard
Note: In general, the difference was called variance, but such topic will discuss fully under Standard costing
*****The presentation of Cost of Goods Sold Statement must be at Actual. Hence, any difference of the FOH
Control/Actual and FOH Applied must closed to Cost of Goods Sold Statement if default (if the problem was silent) but
the said difference as to the matter of correct accounting must be closed to Cost of Goods Sold Statement account,
Finished Goods Account and WIP account using Proportionate approach. The formula, to wit:
Factory Overhead – Applied/Predetermined P XX
Less: Factory Overhead – Control/Actual account P XX
Under – Over Applied FOH Adjustment P XX
Guide:
If Under Applied, meaning the control account is less than the actual account, hence the treatment will be Addition
to cost of goods sold.
If Over Applied, meaning the control account is greater than the actual account, hence the treatment will be
Deduction to cost of goods sold
Raw Materials Inventory System

Periodic Inventory System (Purchases)
Under the above cited inventory system, the purchase of direct and indirect materials is recorded in an account titled
“Purchases”. Cost of materials issued is determined by deducting from the materials available for use the material
inventory – end. Note that under this method the cost of materials issued is not directly determined; it is indirectly
computed by deducting the remaining inventory on hand from the available for use.
Perpetual Inventory System (Materials)
Under the said inventory system, the purchase of direct and indirect materials is recorded in an account entitled “
Materials Inventory” rather than purchases account, also the using the stock card, under this method both the cost of
material issued and the ending materials inventory can be directly ascertained after each transaction. Direct materials
used recorded by debit WIP and indirect materials used recorded by debit FOH – Control.
Basic transactions associated with Raw Materials (Perpetual Inventory System)

Purchase of Raw Materials
The cost of materials is debited to Raw Materials Inventory when the materials are received. This account is debited for
the invoice cost and freight costs chargeable to the purchaser. It is credited from purchase discounts taken and
purchase return and allowances.
Freight in or Transportation costs

Freight in or Transportation costs of raw materials purchased is a product costs. Under perpetual inventory system, the
freight is charged to Raw Materials account. In this case, the total costs of raw materials purchased include the invoice
price plus freight. On the other hand, if the method of accounting for inventories is periodic inventory method, the
freight cost is charged to separate account.
Entry to record the purchase of raw materials:
Raw Materials Inventory Pxx
Accounts Payable or Cash Pxx
Illustration 1. Lan2x Manufacturing Company purchased the following raw materials from Z Company, terms 2/10,
n/30.
Units Weight Unit cost Total
Raw Materials A 1,000 1.5 P5.00 P5,000
Raw Materials B 1,000 2.0 20.00 20,000
Paid P800 for transportation costs of the above purchased.

Required: Determine the amount to be charged to Raw Materials Inventory account under perpetual and periodic
inventory systems if freight is allocated to the unit purchased based on: (a) invoice costs; (b) unit purchased: (c)
weighted units.
Perpetual Method Periodic Method
Particulars Debi Credi Particulars Debi Credi
t t t t
Issuance of Raw Materials

Raw materials are transferred from warehouse to the production department. A material requisition form completed by
the production manager/supervisor is the basis of the raw materials inventory clerk for the release of the materials.
Entry to record the issuance:
Work in process (direct materials) Pxx
Factory overhead (indirect materials) Pxx
Return of excess raw materials to the storeroom:
Work in process (direct materials) Pxx
Factory overhead (indirect materials) Pxx
Return of raw materials to the supplier:
Accounts Payable or Cash Pxx
Material Control (Effective Internal Control)
 Materials of the desired quality must be available when needed.
 Correct quantities and types of materials must be on hand at the right time for the production to proceed on
schedule.
 Materials must be purchased at the most favorable prices.
 Materials must be protected from loss or theft.
 Risks of spoilage and obsolescence must be minimized.
 Cost of materials handling and storage must kept to a minimum.
There are two basic aspect of materials control
1. Physical control or safeguard of materials
 Limited access
 Segregation of duties
 Accuracy in recording
Organization for control2
Control is achieved in part through an organizational structure that allows specialization and the same time that it
defines authority, fixes responsibility and provides a system of check and balance. To secure the advantage of
specialization and know-how, the functions related to materials acquisition and use are usually subdivided into the
following departments:
1. Purchasing Department. Placing order for materials with reliable supplier, at the right time at the right price.
2. Receiving Department. Inspection of the incoming shipments and verification of the quantities received on order.
3. Storeroom (stockroom). Protecting the materials against physical deterioration and ensuring that stock are properly
issued.
4. Accounting Department. Record all transactions in the accounts after all the documentary evidences have been
supplied by other department.
5. Cash Department. Pay all invoices after approval by the accounting department.
2. Control of investment in materials

One of the most important objectives of material control is maintaining the proper balance of materials on hand. An
Inventory of sufficient size and diversity for efficient operation must be maintained. But the size should not be
excessive in relation to scheduled production needs. The planning and control of the materials inventory investment
requires careful study of the following factors: usage of fund; cost of material handling; storage and insurance against
fire, theft, or other casualty, loss from damage, deterioration and obsolescence. These factors should be considered in
determining (1) when order should be place, and (2) how many units should be ordered.
The Company must have EFFECTIVE INVENTORY MANAGEMENT meaning that the management must managed the
inventory cost which deals of PLANNING and CONTROLLING material inventory cost, manager must offers a way of
REDUCING inventory cost by adapting the traditional or just in case (EOQ model) and contemporary inventory model
(JIT and Theory of constraint). Under the traditional, three (3) types of Inventory Cost: 1) cost of acquiring the
inventory – other than the cost of the goods itself; 2) cost of holding the inventory; and 3) cost of not having inventory
on hand when needed.
2 Cost Accounting, Principles and Applications, 2014-15 Edition by Pedro Guerrero, CPAR Reviewer and Co-Founder
1. Cost of Acquiring the inventory – other than the cost of the goods itself. The cost of goods acquiring from outside
source, meaning the cost of PLACING and RECEIVING an order (ORDERING COSTS) examples: the cost of processing an
order (clerical costs and documents), insurance for shipment, and unloading costs.
2. Cost of Holding the inventory. CARRYING COSTS are costs of holding the inventory. Examples include insurance,
inventory taxes, obsolescence, the opportunity cost of funds tied up in inventory, handling costs and storage space.
3. Stock-out costs – are the cost not having the product available when demanded by the customer. Examples are lost
sales, costs of expediting, and the costs of interrupted production.
Control Procedure (5 Control Procedure commonly used) 3

1. Order Cycling. The Materials on Hand are REVIEWED on a REGULAR and PERIODIC cycle.
2. Min-Max Method Assumption: That the Materials Inventory have a Minimum and Maximum Level (If reach the
minimum level of inventory it will trigger for order and if reach the maximum level it tells to stop ordering or no
order)
3. Two-Bin Method. The advantage of the said control procedure it is inexpensive, simple and requires only minimum
clerical time. 1st Bin: Material quantity used from the time order received and the next order is placed, 2 nd Bin:
Material quantity used between ordering & delivery and will be used until the receipts of the shipment.
4. Automatic Order System. It is computerized application for Inventory. Order is automatically placed when the level
of inventory reaches predetermined order point quantity.
5. ABC Plan/Method. Used by companies having a large number of materials having different value. Meaning the
grouping into materials into separate classification and determining the degree of control that each group
requires.
Re-Order Point/Order Point

The point at which an item should be ordered, called the order point occurs when the predetermined minimum level of
inventory on hand is reached. Calculation of the order point is based on the following data:
1. Usage – the anticipated rate at which the materials will be used.
2. Lead time – the estimated time interval between the placement of an order and receipt of the material.
3. Safety stock – the estimated minimum level of inventory needed to protect against running out of stock.
Formula: Reorder point = Usage x Lead time
Illustration 02 Let us assume that:

Lead time 15 days
Daily usage requirement 13.33 units
Reorder point?
Illustration 03: Assume the expected daily usage of an item of materials is 1,000 units, the anticipated lead time is 5
days, and it is estimated that a safety stock of 8,000 units is needed. What is the order point?
Economic Order quantity (EOQ)

The purchase order which result in the minimum total inventory cost. In determining the quantity to be order, the cost
of placing an order and the cost of carrying inventory must be considered.
Factors to be considered in determining ordering costs:

1. Salaries and wages of employees engaged in purchasing, receiving, and inspecting materials.
2. Communication cost associated with ordering such as telephone, postage, and forms of stationery.
3. Materials accounting and record keeping.
Factor to be considered in determining carrying cost

1. Material storage and handling costs,
2. Interest, insurance, and property taxes.
3. Loss due to theft, deterioration, or obsolescence.
4. Record and supplies associated with the carrying of inventories.
Illustration 04: First Class annual demand for units is 10,000 with the cost of placing every order of P10 and with the
carrying cost of P.80. Compute the economic order quantity (EOQ).
Method of computing EOQ

1. Tabular Method
3 Cost Accounting 2014 Edition by Norma De Leon and Guillermo De Leon, PRTC Reviewer
Order No. of Total order Average Total carrying Total order &
size order cost inventory cost carrying cost
100 units
300 units
500 units
700 units
900 units
2. Formula Method
2 x annual demand x cost per order
EOQ=
√ carrying cost
Accounting for SCRAP, SPOILED and DEFECTIVE Goods

The term spoiled units, defective, scrap material and waste material are not synonymous, and they should not be used
interchangeably. For this discussion, the following definition will apply.
Scrap material are left over (residue) from the production process that cannot be put back into production for the
same purpose, but may be usable for a different purpose or production process or which may be sold to outsider for a
nominal amount (when to recognized and how much?).
Spoiled units are units that do meet production standard and are either sold for their salvage value or discarded.
When spoiled units are discovered they are taken out of production and no further work is performed on them.
Defective units are units do not meet production standards and must be processed further (rework costs) in order to
be salable as good units or irregulars.
Waste materials are left over from the production process that has no further use or resale and may require cost for
their disposal.
Accounting for Scrap

A cost accounting system should provide a method of costing and control for scrap as it does for spoilage and
defective units. When the amount of scrap produced exceeds the norm, it could be an indication of inefficiency. A
predetermined rate for scrap should be prepared as a guide for comparison with the actual scrap those results. If large
differences occur, management should find the reason and correct the problem. Scrap materials have commonly been
accounted for in either of the following ways.
Due to lack of quality control and should be prevented if not eliminated

1. To recognized. Produced (material)/sold (immaterial)
2. Scrap revenue.
Production – Scrap returned to storeroom

Specific Job:
Scrap Inventory Xx
Work in Process Xx
Common Job:
Scrap Inventory Xx
Manufacturing overhead – Control Xx
If sold:
Cash/A/R Xx
Scrap Inventory Xx
Note: If sold for more than or less than: adjustment to original Credited.
Scrap is sold: If Immaterial:
Cash/A/R Xx
Scrap Revenue Xx
If material: Specific job:
Cash/A/R Xx
Work in process Xx
If material: Common job:
Cash/A/R Xx
Manufacturing overhead – Control Xx
Illustration:
Assume that RaTTab Lunber Company accumulates sawdust and the scrap from a job has a net sale value of 2,000.
Case A: Return to stockroom and later sold
Return to Stockroom (Specific Job)
DR CR
Sold for 2,000

Return to Stockroom (Common Job)
Sold for 2,000
Case B: Return to stockroom sold later at less than the net sale value
If Sold 1,500 (Specific Job)
If Sold 1,500 (Common Job)
Case C: Sold immediately

Immaterial
Material (Specific Job)
Material (Common Job)
Accounting for Spoiled goods

The method to account for spoiled materials depends on the reason for such spoilage.
1. Charge to production (all production)

This method is used if the reason for the spoilage is considered normal to the process and the number does not exceed
the limit set by the company. With this method, all units manufactured during the period are charged with an
additional cost which is added to the factory overhead rate. The unit cost originally charged will not increase anymore
even if there are spoiled units discovered later on.
-imperfect processing/ cannot be corrected due to technical or economic factor
Spoiled goods Pxxx
Factory Overhead – Control Pxxx
Work In Process Pxxx
Note: The amount debited to spoiled is equal to the number of units spoiled multiplied by the estimated sales value
per unit (units spoiled x est. sales value per unit). the amount credited to WIP is equal to the total cost
incurred/charged to the spoiled units. The loss is charged to FOH – Control account. If the number of units spoiled
exceed the limit set by the company, or if the reason is not considered normal to the process, the loss on spoiled units
is charged to a loss account.
2. Charged to the specific job

This method is used if the reason for the spoilage is the job itself, because it requires exacting specifications, or a
difficult, intricate or complicated manufacturing process.
Spoiled goods Pxxx
Work In Process Pxxx
Note: The amount to spoiled goods and credit to work in process is equal to the number of units spoiled multiplied by
the estimated sale value per unit.
Important: basic problem on the topic is how loss due to spoilage should be charged, either particular/specific job
(customer specification) or to all job/all production (internal failure)
Illustrative problem:
Material 456,000
Direct labor 240,000
Applied overhead (150% of DL cost) 360,000
Total cost charged to Job 1,056,000
Produced 200
Spoiled 10
Net disposal value of spoiled(each) 3,000
If charged to a particular job (customer specification)

1. To removed est. disposal value of spoiled goods from WIP.
2. The cost of remaining good units.

3. Sold at 130% markup.
4. If spoiled goods was sold
All Job: (internal failure)

1
2.
3.
Guide:
Particular Job All production
Accounting for Defective goods (Rework)

Units of production that fail to meet production standards but that can be brought up to standard by adding more
materials, labor and overhead are generally referred to as defective goods. The additional cost required to bring
these goods up to the standard therefore a rework cost. Rework cost again may either charged to specific job or to all
the job.

Continuation of the illustrative problem:

Additional information:
Work in process 52,800
Materials 22,800
Direct labor 12,000
Applied Overhead 18,000
If rework, additional cost 9,500 (direct material 2,000, direct labor 3,000, Applied overhead 4,500)
Specific Job:
1. Record the rework cost.
2. Assume 130% markup of rework goods, record the sales
All Job:
1. Transfer rework to manufacturing overhead – control:
2. Record the total cost of the job.
3. Record the sales of job
Guide:
Specific Job All Production
Factory Overhead

All cost incurred in the factory that are not direct material or direct labor are generally termed as Factory
overhead. Factory overhead refers to the cost pool used to accumulate all indirect manufacturing costs.
Examples of factory overhead include the following:
a. Indirect materials and indirect labor
b. Heat, light, and power for the factory
c. Rent on factory building
d. Depreciation on factory building and factory equipment
e. Maintenance of factory building and factory equipment
f. Factory supplies
g. Wages of supervisors, factory maintenance personnel, raw materials handlers/stockman,
factory security men.
h. Factory overtime, shift and night premium.
i. Employers share of SSS, PhilHealth, and Pag-ibig.
Predetermined Overhead Rate

In a normal cost system of accumulating product costs, the overhead is charged to Work In Process using
the predetermined overhead rate. A predetermined overhead rate is a budgeted and constant charge per
unit of activity. The activity chosen is called the Overhead Allocation Base or Cost Driver.
Budgeted factory overhead
Formula: Predetermined Overhead Rate=
Budgeted productionactivity
Factor to be considered in the computation of overhead rates (commonly used bases):

1. Base to be Used
a. Physical output d. Direct Labor Hours
b. Direct Material Cost e. Machine Hours
c. Direct Labor Cost
2. Activity level to use
a. Normal Capacity b. Expected actual Capacity
3. Inclusion or exclusion Of Fixed Factory
Overhead
a. Absorption Costing b. Variable Costing
4. Use of single rate or Several rates
a. Plant wide or Blanket rate – one rate for all b. Departmentalization – one rate for each producing
producing department department.
Base to be used
The based to be used be related to function represented by the overhead cost being applied. If the
factory overhead is labor – oriented, the most appropriate base to use is direct labor hours or direct labor
cost. If the factory is investment – oriented, related to operation of machinery, then the most appropriate
base will be machine hours. On the other hand, if factory overhead is material – oriented, then material
cost might be considered as the most appropriate base. The simplest of all bases is physical output or
units of production.
Illustration 01: The Salazar Round Table Company estimates factory overhead at P450,000 for the
next fiscal year. It is estimated that 90,000 units will be produced at a material cost of P600,000.
Conversion will require an estimated 100,000 direct labor hours at a cost of P3 per hour, with 45,000
machine hours. Required: Compute the predetermined factory rate based on:
Guide:
a. Material Cost
b. Units of Production
c. Machine Hours
d. Direct Labor Cost
e. Direct Labor Hours
Note: The rate computed above is known as the Plant-wide or blanket rate. All department in the
company will use the same application rate for factory overhead and also the same base.

Illustration 02: Assume the following budgeted data for the year:
Manufacturing overhead costs P96,000
Number of goods of production 24,000 units
Direct material costs P480,000
Machines hours 12,000 hours
Direct labor hours 40,000 hours
Direct labor costs P200,000
Required: Compute the predetermined overhead rate based on:
Guide:
a. Material Cost
b. Units of Production
c. Machine Hours
d. Direct Labor Cost
e. Direct Labor Hours
Recording Factory Overhead Applied (FOH – Applied)

Work In Process Pxx
Factory Overhead – Applied Pxx
Departmental Rate and Plant-wide Rate

Manufacturing companies normally have two or more production departments that convert the raw
materials into finished product. The production technology may differ in each department so that one
department maybe highly automated using machines in its operation while the other utilizes mostly
manpower. Because of this, the use of departmental rates (one overhead rate per department) is
recommended to allow each department to select the most appropriate measure of activity relative to its
operation. This method provides more accurate product costing considering that manufacturing overhead
incurred includes various overhead costs that vary greatly in their relationship to the production process.
If only one overhead rate is chosen by the company for the allocation of manufacturing overhead to
different jobs, that overhead rate is called plant wide rate.
Illustration 03: SF Manufacturing Company has two producing department, Assemble and Finishing
Department. Assembly Department has significant amount of labor-related overhead and it uses direct
labor hours as a cost driver while Finishing Department has significant amount of machine-related
overhead and it uses machines hours as the cost driver. The following data are available for SF
Manufacturing Company for the year just ended:
Budgeted Data Assembly Finishing
Manufacturing overhead P1,890,000 P1,260,000
Direct labor hours 52,000 20,000
Machine hours 15,000 80,000
Actual date:
DM used per unit P120 P50
Direct labor cost per unit 2hrs@P37.50/hr .75hr@P37.50/hr
Machine time used per unit 30 min. 3 hrs.
Actual production: 25,000 units
Required: Determine the total cost of producing the 25,000 units assuming (a) plant wide rate based on
direct labor hours and (b) department rate.
Guide: Plant wide rate based on direct labor hours.

Cost Elements Assembly Finishing Total
DM
DL
FOH
Total costs

Guide: Departmental rates: Assemble uses DLH while Finishing uses MH

Cost Elements Assembly Finishing Total
DM
DL
Overhead
Total costs
Method of allocating Service Department Cost to Producing Departments

1. Direct Method (the most widely used method) this method ignores any service rendered by one service
department to another. It allocates each service department’s total cost directly to producing
departments.
2. Step Method (sequential method of allocation) this method recognizes services rendered by service
departments to other service departments and is more complicated because it requires a sequence of
allocation. The sequence typically starts with the department that renders service to the greatest number
of other service departments and ends with the department that renders service to the least number of
other departments. Once the service department’s costs are allocated, no subsequent service
department costs are allocated to it.
3. Algerbraic Method (Reciprocal method) this method allocates costs by explicitly including the mutual
service rendered among all departments.
Illustration 04: MM Manufacturing Company has four (4) departments. Two producing departments,
Assembly and Finishing, and two service departments, Cafeteria and Maintenance. The overhead cost of
Cafeteria is allocated based on number of employees while the overhead cost of Maintenance is allocated
based on estimated factory overhead. Assembly department used direct labor hours and Finishing
department used machine hours as bases in computing for predetermined overhead rates.
Service Department Producing Department
Cafeteri Maintenanc Assembl Finishing
a e e
Estimated Dept. OH P250,000 P150,000 P100,000 P60,000
Estimated DLH 200,000 100,000
Estimated MH 150,000 250,000
Number of employee 100 20 1,500 1,000
Required: Allocate service departments cost using direct method, step method starting with cafeteria and
algebraic method.
Guide: Direct Method
Cafeteria Maintenanc Assembly Finishing
e
Est. Dept. OH costs
Cafeteria:
Assembly:
Finishing:
Maintenance
Assemble:
Finishing:
Total est. Factory overhead
Divided by
Manufacturing Overhead
rate
Guide: Step Method starting with cafeteria

Cafeteria Maintenanc Assembly Finishing
e
Est. Dept. OH costs
Cafeteria:
Maintenance:

Assembly:
Finishing:
Maintenance
Assemble:
Finishing:
Total est. Factory overhead
Divided by
Manufacturing Overhead rate
Guide: Algebraic Method

Service Department Producing Department
Cafeteri Maintenanc Assembl Finishing
a e e
Estimated Dept. OH
Number of employee
Services provided by:
Cafeteria:
Maintenance:
Step 1: Set up the Cost formula

Cafeteria =
Maintenance =
Step 2: Compute the new value of each service department
Cafeteria =
=
=
Maintenance =
=
Step 3: Allocate the service costs to the producing departments
Allocation Assembly Finishing
Cafeteria:
Assembly:
Finishing:
Maintenance
Assemble:
Finishing:
Total allocated service costs
JOB ORDER COSTING

Job order costing is a system for allocating cost to group of unique product. It is applicable to the
production of customer specified products such as the manufacture of special machines. Each job
becomes a cost center for which cost are accumulated. A subsidiary record (Job Cost Sheet) is needed to
keep track of all jobs (work in process) and finished jobs (finished goods)In job order costing, each job is
an accounting unit to which material, labor and factory overhead cost assigned by means of job order
number.
The cost of each order produced for a given customer or the cost of each lot to be placed in stock
is recorded on a summary sheet called Job Order Cost Sheet or simply Cost sheet. This cost sheet is
designed to collect the cost of materials, labor, and factory overhead applicable to specific job.
Major source document for Job order Costing

1. Job Order cost Sheet
a. These records accumulate product costs of specific units or small batches of units for both product
costing and control purposes.
b. The file of job order sheets for uncompleted jobs serves as a perpetual book inventory and the
subsidiary ledger for Work in Process Control.

c. A separate cost sheet is prepared for each job.

2. Material Stock card
a. These records are the perpetual book inventory of cost and quantities of materials on hand.
b. The file of materials stock cards for unused materials is subsidiary ledger for Material Control.
c. A separate stock card is prepared for each type of material on hand.
3. Finished Goods Stock card
a. These records are the perpetual book inventory of cost and quantities of complete goods held for
sale.
b. The file of finished goods stock cards for unsold goods is subsidiary ledger of Finished Goods
Control.
4. Factory Overhead Control Cost Record
a. These records accumulate detailed manufacturing overhead cost by department.
b. The file of these records for the accounting period is the subsidiary ledger for Factory Overhead
Control.
5. Material Requisition, Time Ticket and Clock Card
a. As the source document for changing costs to jobs and department
b. To aid fixing responsibility for control and usage of material and labor.
Accounting Procedures for Materials - Done

Accounting Procedures for Labor - Done
Accounting for factory Overhead – Done
Assessment Task
PROBLEMS
1. In Cromwell Company, the predetermined overhead rate is 80% of direct labor cost. During the
month, Cromwell incurs P 210,000 of factory labor costs, of which P 180,000 is direct labor and P
30,000 is indirect labor. Actual overhead incurred was P 200,000. The amount of overhead
debited to Work in process Inventory should be:
2. The following information was taken from Jeric Company’s accounting records for the year ended
December 31, 2014.
Increase in raw materials inventory P 15,000
Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
There was no work in process inventory at the beginning or end of the year. Jeric’s 2014 cost of
goods sold is:
Items 3 and 5 are based on the following information pertaining to Glenn Company’s
manufacturing operations.
Inventories 3/1/14 3/31/14
Direct materials P36,000 P 30,000
Work in process 18,000 12,000
Finished goods 54,000 72,000
Additional information for the month of March 2014
Direct materials purchased P 84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate/direct labor hour 10.00
3. For the month of March 2014, prime cost was:
4. For the month of March 2014, conversion cost was:

5. For the month of March 2014, cost of goods manufactured was:
Items 6 and 7 are based on the following data of Matatag Company for the month of March
2014.
March 1 March 31
Materials P40,000 P50,000
Work in process 25,000 35,000
Finished goods 60,000 0,000
March 1 to 31 2014
Direct labor cost 120,000
Factory overhead applied 108,000
Cost of goods sold 378,000
6. The total amount of direct materials purchase during March was:
7. The cost of goods manufactured during March 2014 was:
Item 8 to 13. Some selected sales and cost data for Alcid Manufacturing Company are given
below:
Direct materials used P100,000
Factory overhead (40% variable) 75,000
Selling and administrative expenses (50% direct, 60% variable) 120,000
8. Prime cost was:
9. Conversion cost was:
10. Direct cost was:
11. Indirect cost was:
12. Product cost was:
13. Variable cost was:
14. During 2014, there was no change in either the raw material or work in process beginning and
ending inventories. However, finished goods, which had a beginning, balance of P 25,000,
increased by P 15,000. If the manufacturing costs incurred totaled P 600,000 during 2014, the
goods available for sale must have been:
15. During the month of May, 2014, Candid Manufacturing Co. incurred P 30,000, P 40,000, and P
20,000 of direct material, direct labor and factory overhead costs respectively. If the cost of goods
manufactured was P 95,000 in total and the ending work in process inventory was P 15,000, the
beginning inventory of work in process must have been:
16. The Lion Company’s cost of goods manufactured was P 120,000 when its sales were P 360,000
and its gross margin was P 220,000.
If the ending inventory of finished goods was P 30,000, the beginning inventory of finished goods
must have been:
17. The gross margin for Cruise Company for 2014 was P 325,000 when sales were P 700,000. The FG
inventory was P 60,000 and the FG inventory, end was P 35,000. The cost of goods manufactured
was:
18. During the month of January, F Co.’s direct labor cost totaled P 36,000, and direct labor cost was
60% of prime cost. If total mfg. costs during January were P 85,000, the factory overhead was:

19. During 2014, there was no change in the beginning or ending balance in the Materials inventory
account for the DL Co. however, the WIP inventory account increased by P 15,000 and the FG
inventory decreased by P 10,000. If purchases of raw materials were P 100,000 for the year,
direct labor costs was P 150,000, and manufacturing overhead cost was P 200,000, the cost of
goods sold for the year would be:
20. During the month of March, 2014, Nape Co. used P 300,000 of direct materials. At March 31,
2014, Nape’s direct materials inventory was P 50,000 more than it was at March 1, 2014. Direct
material purchases during the month of March 2014 amounted to:
21. Calculate the manufacturing overhead incurred for F&B Co. :

Direct labor cost incurred P250
Direct materials used 110
Beginning work in process 50
Ending work in process 300
Finished goods completed 170
22. Determine the sales for the year.

Gross profit P280,000
Ending inventory 120,000
Goods available for sale 180,000
23. Given the following information:

Finished goods beginning P26,000
Finished goods ending 37,000
Cost of goods manufactured 127,000
What is the cost of goods sold?
24. Uniflo Manufacturing Company developed the following data for the current year.
Work in process inventory, January 1 P40,000
Direct materials used 24,000
Actual factory overhead 48,000
Applied factory overhead 36,000
Total manufacturing costs 120,000
Uniflo Company’s direct labor cost for the year is:
25. Uniflo Company’s work in process inventory, December 31 is:
26. The following data relate to Maxine Manufacturing Company for the period:
Direct labor P2,400
Factory overhead 1,700
Work in process inventory, beginning 11,000
Work in process inventory, end 5,000
Sales 50,000
Finished goods inventory, beginning 9,000
Finished goods inventory, end 8,000
Total selling, general, and administrative costs 14,000
The amount of direct materials put into production during the period:
27. The amount of increase in retained earnings during the period:

28. Arizona Manufacturing Company reported the following year – end information
Work in process inventory, January 1 P180,000
Raw materials inventory, January 1 50,000
Work in process inventory, December 31 150,000
Raw materials inventory, December 31 80,000
Raw materials purchased 160,000
Factory overhead applied 100,000
Factory overhead control 120,000
Cost of goods manufactured for the year is:
29. Alabama Corporation reported the following for the year. WP inventory, beg – P 90,000; cost of
goods manufactured – P 258,000; FG inventory, beg – P 126,000; WP inventory, end – P 110,000;
FG inventory, end – P 132,000; Cost of goods sold for Alabama Corporation during the year:
30. Total Manufacturing costs for Alabama Corporation:
31. Dexter Company's 2011 manufacturing costs were as follows:

Direct materials and direct labor P 500,000
Depreciation of manufacturing equipment P 70,000
Depreciation of factory building P 40,000
Janitor's wages for cleaning factory premises P15,000
How much of these costs should be inventoried for external reporting purposes?
32. Jorelle Corporation has a job order cost system. The following debits (credits) appeared in the
work-in-process account for the month of March of the current year.
March Description Amount
1 Balance P 2,000
31 Direct materials 12,000
31 Direct labor 8,000
31 Factory overhead 6,400
31 To finished goods (24,000)
Jorelle applies overhead to production at a predetermined rate of 80% based on direct labor cost.
Job No. 30, the only job still in process at the end of March has been charged with direct labor of P
1,000. The amount of direct materials charged to Job was
33. Abner Corporation has a manufactured 100,000 units of compound X in 2014 at the following
costs. Labor of P 242,500 of which 93% represents direct labor. Materials of 182,500 of which 90%
represents direct materials. Opening work in process is 88,125. Closing work in process inventory
is 67,500. Overhead is applied at 125% of direct labor cost. The cost of goods manufactured is:
34. MV Crafts manufacturers to customer order using the job order cost system. For thee month just
ended, it registered the following data.
Beginning work in process (5 partially completed jobs) P 300,000
Orders completed (18) 2,400,000
Orders shipped (14) 2,000,000
Materials requisitioned for the month 1,700,000
Direct labor cost 800,000
Factory overhead rate 150% of direct labor cost
The ending work in process inventory was:
Assessment Task
MULTIPLE CHOICE
35. The Curacha Company uses 20,000 units of Material A in making a finished product. The cost to place
one order for Material A is P 8.00 and the annual cost to carry one Material A is P 2.00. The economic
order quantity for Material A is.

36. If the cost to place one order increased by P 10 and the cost to carry one Material A in stock remains
the same, the economic order quantity will be
One of the products that Justine corporation sells is “Extra Soft” floor mats. Justine’s ordering costs
related to the mat is P 12.50 per order. The cost of carrying one mat in inventory for one year is P 16.00.
Justine sells 40,000 of these mats evenly throughout the year.
37. What is the economic order quantity of Justine Corporation?
38. What are Justine’s total ordering costs per year and total carrying costs per year at the economic
order quantity? Ordering cost and carrying cost
39. One of the products that Ram Breakfast Foods manufactures is carrot juice. Ram manufactures and
sells 5,000 cases of carrot juice evenly each year. Variable manufacturing costs are P 4.50 per case. It
costs Ram P 3.60 setup a production run for carrot juice. It also costs Ram P 2.50 per year to carry a case
of carrot juice in inventory. What is Ram’s economic production run size?
The following information pertains to Material X used by Nikki Company

Annual usage units 20,000
Working days per year 250
Safety stock in units 800
Normal lead time in working days 30
40. If units of Material X will be required evenly throughout the year, the reorder point is
The following information relates to PRTC Company

Units required per year 60,000
Cost placing an order P 900
Carrying cost per unit per year P 1,200
41. Assuming that the units will be required to evenly throughout the year, what is the EOQ?
He following information relates to Blueberry Company’s materials Y

Working days per year 240
Normal lead time in working days 20
Maximum level lead time in working days 45
42. Assuming that the units of material Y will be required evenly throughout the year, the safety stock
and order point would be
The following information is about a company’s inventory costs.

Total cost to place one order P 50
Total cost to carry one unit P 4
Economic Order Quantity 7,000 units
43. What is the company’s estimated annual usage?
44. How many orders will placed?
Norman buys baseball bats from a manufacturer at P10 each. Norman expects to sell 90,000 bats evenly
over the next year. Norman’s cost of capital is 10 percent. The total out-of-the-pocket cost to carry one
bat in inventory is P 0.50 and the cost of ordering bats is P 15 per order.
45. Suppose that Norman orders 3,000 bats at a time. What is the total annual inventory cost?
46. What is the economic order quantity?
47. How many times would Norman have to place an order in one year?
Assessment Task:
PROBLEMS
48. Sensual Scent, Inc. Uses a job-order cost system with machine hours as the overhead as the
overhead base. At the beginning of last year, Sensual estimated 38,000 machine hours and P152,000 of
manufacturing overhead costs. For the year, only 37,500 machine hours were logged but P153,500 of
overhead cost was incurred. What is Sensual’s under-or overapplied manufacturing overhead?

The following information relates to Donna Corporation for the last year. Donna uses direct labor hours
as an overhead base.
Estimated direct labor hours 136,000 hours
Estimated manufacturing overhead costs P108,800
Actual manufacturing overhead costs P108,480
Applied manufacturing overhead costs P110,000
49. What was the actual number of direct labor hours worked last year at Donna?
D’santos uses a job-order cost system with machine hours as an overhead base. The following
information relates to D’Santos for last year:
Estimated machine hours for the year 42,000
Actual machine hours for the year 40,800
Predetermined overhead rate P1.50 per MH
Underapplied factory overhead P2,600
50. What is the peso amount of the Est. OH, Applied OH, and Actual OH?
51. Justine Company budgeted total variance overhead costs at P180,000 for the current period. In
addition, they budgeted costs for factory rent at P215,000, costs for depreciation of office equipment at
P12,000 costs for office rent at P92,000, and costs for depreciation of factory equipment at P38,000. All
these costs were based upon estimated machine hours of 80,000. At the end of the period, the Factory
Overhead control account had a balance of P387,875. Actual machine hours were 74,000. What was the
over or underapplied factory overhead for the period?
52. Marvin Company uses a job costing system and applies overhead to products on the basis of direct
labor cost. Job no. 75, the only job in process on January 1, had the following costs assigned as of that
date: direct materials, P40,000; direct labor, P80,000, and factory overhead , P120,000. The following
selected costs were incurred during the year 2009:
Traceable to jobs:
Direct materials P178,000
Direct labor 350,000 P523,000
Not traceable to jobs:
Factory materials and supplies P46,000
Indirect labor 235,000
Plain maintenance 73,000
Depreciation on factory equipment 29,000
Other costs 76,000 459,000
Marvin’s profit plan for the year included budgeted direct labor of P320,000 and factory overhead of
P384,000. Assuming no work-in-process on Dec.31, Marvin’s overhead for the year was.
Illustration 03: Lanuza Tajale (LT) Company’s factory is divided into four (4) department – Producing
Department; Molding and Decorating; serviced by the Buildings and Grounds and the Factory
Administration Departments. Building and Grounds cost will be allocated using square feet (floor area)
and Factory Administration cost will be allocated using direct labor hours. In computing predetermined
overhead rates, machine hours are used as the base in Molding and direct labor hours as base in
Decorating.
Moldin Decoratin Bldg & Grounds Factory Admin
g g
Budgeted FO 400,000 600,000 80,000 120,000
DLHs 200,000 100,000
Floor Area 100,000 60,000 2,000 4,000
Machine hours 200,000 100,000
Requirements: Allocate the cost of the service departments using:
1. Direct Method

2. Step method – start with Bldgs. and Grounds

3. Algebraic method
1. Direct Method
Molding Decorating B&A Factory Admin
2. Step method
3. Algebraic method. Additional information

B&A FA
Molding 50% 40%
Decorating 30% 50%
B&A - 10%
FA 20% -
Algebraic equation:
B&A = 80,000 + 10%(FA)
FA = 120,000 + 20%(B&A)
Guide
Budgeted FO
Allocated FO
B&G
FA
Total FO
Base
FO Rate
Assessment Task
MCQs
Dexter Company's 2011 manufacturing costs were as follows:
Direct materials and direct labor P500,000
Depreciation of manufacturing equipment P70,000
Depreciation of factory building P40,000
Janitor's wages for cleaning factory premises P15,000
53. How much of these costs should be inventoried for external reporting purposes?
a. P 625, 000
b. P 610, 000
c. P 585, 000
d. P 500, 000
Peter Paul Company uses a job order cost system and applies factory overhead to production orders on
the basis of direct labor cost. The overhead rates for 2008 are 200% for dept. B Job 123, started and
completed during 2014, was charged with the following costs:
Department A Department B
Direct materials P25,000 P5,000
Direct labor ? P30,000
Factory overhead P40,000 ?
54. The total manufacturing costs associated with Job 123 should be

a. 135,000
b. 180,000
c. 195,000
d. 240,000
Jorelle Corporation has a job order cost system. The following debits (credits) appeared in the work-in-
process account for the month of March of the current year.
March Description Amount
1 Balance P2,000
31 Direct materials P12,000
31 Direct labor P8,000
31 Factory overhead P6,400
31 To finished goods (P24,000)
Jorelle applies overhead to production at a predetermined rate of 80% based on direct labor cost. Job No.
30, the only job still in process at the end of March 2 has been charged with direct labor of P 1,000.
55. The amount of direct materials charged to Job was
a.12,000
b. 4,400
c. 2,600
d. 1,500
Blue Beach Industries has two production departments. ABC and XYZ, and uses a job order cost system.
To determine manufacturing costs, the company applies manufacturing overhead to production orders
based on direct labor cost using the departmental rates predetermined at the beginning of the year based
on the annual budget. The 2014 budget for the two departments was as follows:
ABC XYZ
Direct materials P630,000 P90,000
Direct labor P180,000 P720,000
Factory overhead P540,000 P360,000
Actual materials and labor costs of Job No. 676 during 2014 were as follows:
Direct materials P 22,500
Direct labor-ABC 7,200
Direct labor-XYZ 10,800
56. What was the total manufacturing costs associated with Job No. 678 for 2014?
a. P 45,000
b. P 49,500
c. P 58,500
d. P 67,500
The Work-In-Process account of the Malinta Company follows:

Work-In-Process
April 1 bal. P25,000 Finished Goods P 125,450
Direct materials 50,000
Direct labor 40,000
Factory overhead-applied 30,000
Overhead is applied to production at a predetermined rate, based on direct labor cost. The work in
process at April 30 represents the cost of job no. 456, which has been charged with direct labor cost of
P3,000 and Job No. 789, which has been charged wirh applied overhead of 2,400.
57. The cost of direct materials charged to Job No. 456 and Job No. 789 amounted to:
a. P 8,700
b. P 7,600
c. P 4,500
d. P 4,200
58. The prime cost during the month amounted to:

a. P 70,000
b.P 90,000
c.P 120,000
d.P145,000

The Diamond Company uses a job order cost accounting system. Overhead is applied to production at a
predetermined rate of 80% based on a direct labor cost. The following postings appear in the ledger
accounts of the company for the month of September.
Debit
Work in process, Sept. 1 P30,000
Direct labor P50,000
Factory overhead P40,000
Cost of goods completed (P155,000)
Job No. 327 was only job not completed in September, and it has been charged P 4,600 for factory
overhead.
59. Direct materials charged to Job. No. 327 was:
a. P 10,350
b. P 14,650
c. P 20,000
d. P 25,000
60. Direct labor charged to Job.327 was:

a. P 5,750
b. P 6,784
c. P 8,280
d. P 8,480
Hamilton Company uses job-order costing. Factory overhead is applied to production at a budgeted cost
of 150% of direct labor costs. Any over applied or under applied factory overhead is closed to the cost of
goods sold account at the end of each month. Job 101 was the only job in process at January 31 with
accumulated costs as follows:
Direct labor P2,000
Factory overhead - Applied P3,000
Total P9,000
Jobs 102,103 and 104 were started during February. Direct materials requisitions for February totaled
P26,000. Direct labor costs of 20,000 were incurred for February. Actual factory overhead was 32,000 for
February. The only job still in process at February 28, was Job 104, with costs of 2,800 for direct materials
and 1,800 for direct labor.
61. The cost of goods manufactured for February was:
a. P 77,700
b. P 78,000
c. P 79,700
d. P 85,000
The following information relates to Job No.2468, which is being manufactured by Daisy Co. to meet
customer's order.
Department A Department B
Direct materials used P5,000 P3,000
Direct labor hours used 400 200
Direct labor rate/hour P4.00 P5.00
Overhead rate/DL hour P4.00 P4.00
Administrative and selling expenses 20% of full production cost
Profit markup 25% of selling price
62. The selling price to the consumer for Job 2468 is:
a. P 16,250
b. P 20,800
c. P 17,333
d. P 10,800
Abner corporation has a manufactured 100,000 units of compound X in 2014 at the following costs. Labor
of P 242,500 of which 93% represents direct labor. Materials of 182,500 of which 90% represents direct
materials. Opening work in process is 88,125. Closing work in process inventory is 67,500. Overhead is
applied at 125% of direct labor cost.
63. The cost of goods manufactured is

a. P671,150
b. P692,306
c. P651,036
d. P692,900
Jolly Co. employs the job order cost system. Relevant data for the month just ended are summarized
below.
a. Work in process beginning P100,000
b. Direct materials used for the month P200,000
c. Direct labor costs for the month P160,000
d. Overhead applied based on direct labor P120,000
e. Cost of goods completed P501,800
f. Ending work in process referred to Job 106 which was charged with direct labor of P12,000 and
Job 107 charged with overhead of P9,600.
64. The cost of direct materials charged to Jobs 106 and 107 was
a. P 34,800
b. P 16,800
c. P 30,000
d. P 36,000
MV Crafts manufacturers to customer order using the job order cost system. For thee month just ended,
it registered the following data.
Beginning work in process (5 partially completed jobs) P300,000
Orders completed (18) P2,400,000
Orders shipped (14) P2,000,000
Materials requisitioned for the month P1,700,000
Direct labor cost P800,000
Factory overhead rate 150% of direct labor cost
65. The ending work in process inventory was
a. P 1,400,000
b. P 500,000
c. P 1,600,000
d. P 700,000
Adams Company uses a job order costing system and the following information is available from the
records. The company has 3 jobs in process. 501,502 and 503.
Raw materials used P120,000
Direct Labor per hour P8.50
Overhead applied based on direct labor cost 120%
Direct material was requisitioned as follows for each job, respectively: 30%,20% and 25%, the balance of
the requisitions were considered indirect. Direct labor hours per job are 2,500, 3,100, and 4,200,
respectively. Indirect labor is P33,000. Other actual overhead costs totaled P36,000.
66. What is the total amount of actual factory overhead?
a. P36,000
b.P69,000
c.P93,000
d.P99,960
67. If job 503 is completed and transferred, how much is te total cost transferred to finished goods
Inventory?
a. P 96,700
b. P 99,020
c. P 108,540
d. P139,540
Work in process of alonzo Corporation on July 1 ( per general ledger) is P22,800. Per cost sheets:
Job 101 Job 102
Direct materials P6000 P8000
Direct labor P3000 P2500
Amount charged to work in process for July of the current year
Job 101 Job 102 Job 103 Job 104

Direct materials P3,000 P2,000 P6,000 P4,500

Direct labor P1,000 P1,500 P2,600 P2000
Factory overhead is applied to production based on direct labor cost. Job 101 and 103 are completed
during the month
68. Cost of goods put into process must be:
a. P 42,100
b. P 26,860
c. P 45,400
d. P 49,660
69. The cost of goods manufactured for the month of July is

a. P21,600
b.P15,400
c.P25,560
d.31,800
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Cost Accounting UEMLA

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Cost Accounting UEMLA

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National University Cost Accounting & Cost Management

Accounting for Material

Cost Accounting Cycle

Manufacturing Inventory Accounts

Work in Process Inventory

Finished Goods Inventory

Manufacturing Entity Merchandising Entity

Raw Materials Inventory System

Basic transactions associated with Raw Materials (Perpetual Inventory System)

Freight in or Transportation costs

Accounting Instructor: Melziel Andag Emba

Issuance of Raw Materials

2. Control of investment in materials

Control Procedure (5 Control Procedure commonly used) 3

Re-Order Point/Order Point

Illustration 02 Let us assume that:

Economic Order quantity (EOQ)

Factors to be considered in determining ordering costs:

Factor to be considered in determining carrying cost

Method of computing EOQ

Accounting for SCRAP, SPOILED and DEFECTIVE Goods

Accounting for Scrap

Due to lack of quality control and should be prevented if not eliminated

Production – Scrap returned to storeroom

Sold for 2,000

Accounting Instructor: Melziel Andag Emba

Return to Stockroom (Common Job)

Sold for 2,000

If Sold 1,500 (Common Job)

Case C: Sold immediately

Material (Specific Job)

Material (Common Job)

Accounting for Spoiled goods

1. Charge to production (all production)

2. Charged to the specific job

If charged to a particular job (customer specification)

2. The cost of remaining good units.

Accounting Instructor: Melziel Andag Emba

3. Sold at 130% markup.

4. If spoiled goods was sold

All Job: (internal failure)

Accounting for Defective goods (Rework)

Accounting Instructor: Melziel Andag Emba

Continuation of the illustrative problem:

2. Assume 130% markup of rework goods, record the sales

2. Record the total cost of the job.

3. Record the sales of job

Accounting Instructor: Melziel Andag Emba

Predetermined Overhead Rate

Factor to be considered in the computation of overhead rates (commonly used bases):

Accounting Instructor: Melziel Andag Emba

Recording Factory Overhead Applied (FOH – Applied)

Departmental Rate and Plant-wide Rate

Guide: Plant wide rate based on direct labor hours.

Accounting Instructor: Melziel Andag Emba

Guide: Departmental rates: Assemble uses DLH while Finishing uses MH

Method of allocating Service Department Cost to Producing Departments

Guide: Step Method starting with cafeteria

Accounting Instructor: Melziel Andag Emba

Guide: Algebraic Method

Step 1: Set up the Cost formula

JOB ORDER COSTING