COST ACCOUNTING Subsidiary Accounts.

An account that is kept within a subsidiary

ledger, which in turn summarizes into a control account in the
Area of accounting concerned with cost determination and cost general ledger. It is used to track information at a very detailed
control. level for certain types of transactions.

Cost Determination. This refers accumulation of cost data by

products, processes or services to be able to arrive at unit cost or
cost per work unit. Remember:

Cost Control. Standards are set for costs per unit and per work unit - Beginning and ending is recorded in debit.
and are subsequently compared with the figures per actual - If beginning only, it will be recorded in credit.
operations so that remedial measures may be adopted.
POSTINGS TO THE CONTROLLING ACCOUNTS
COMPARISONS
MATERIALS
Cost Accounting. It supplements financial accounting by providing Materials purchases Purchase returns
breakdowns or details for cost figures contained in all-purpose Freight in Purchase discounts
financial statements. Its reports are based on cost data as Returns of materials previously Materials Issued
accumulated in subsidiary ledgers for costs and expenses incurred. It issued
is usually for management use. Kung magiimagine tayo ng venn
diagram, yung nasa gitna between external and internal users, siya
 Returns of materials previously issued means that for example sa
yung nirerepresent ng cost. Cinacater niya both external and
materials na inissue mo, merong hindi nagamit. Ibabalik siya sa
internal.
factory and it is the return of materials previously issued.
Financial Accounting (Intermediate). It derived from postings to the
WORK IN PROCESS
general ledger. It is made for external users.
Materials, labor, and factory Cost of goods manufactured
Managerial Accounting (Strategic). It is usually for internal users. It overhead charged to
is concerned with processing historical and projected economic data production
of an entity to assist management in setting up reasonable economic
objectives and in making rational decisions towards the attainment
 Kung ano yung materials issued sa materials, siya yung debit ng work
of these objectives.
in process.
 Cost of goods manufactured are occurred when the product is
USES OF COST DATA
finished and is ready for sold. Thus, work in process account is
 Price setting closed and cost of goods manufactured is opened.
 Choice of product line
FINISHED GOODS
 Make or buy
 Contraction or expansion Cost of goods manufactured Cost of goods sold
 Temporary shutdown Cost of returned goods which Goods returned to factory for
were previously sold processing
THE COST SYSTEM
Under cost system, the perpetual inventory method is used. This  Kapag nakatapos, debit finished goods, credit work in process.
method of accounting for inventories involves the use of perpetual  Cost of returned goods which were previously sold, kapartner niya
records showing the flow of costs or resources. ang cost of goods sold. Binili sa atin ng customer, eventually,
isinauli edi papasok ulit yung finished goods sa atin.
Controlling Accounts Subsidiary Records  Goods returned to factory for processing is babalik naman sa WIP
Materials  Materials Ledger Cards kase kailangan may ireprocess.
Stores  Stores Ledger Cards
Other Controlling Accounts. These are accounts both used under
Work in Process  Job Order Cost Sheet
 Cost of Production periodic and perpetual, which are the following: Factory Overhead
Reports Control, Selling Expenses Control, and General and Administrative
Finished Goods  Finished Goods Ledger Expenses Control.
Cards
METHODS OF COSTING AS TO TYPE OF COST

Actual Costing. Yung product costs lahat ay actual. Kung magkano

Controlling Accounts. A general ledger account that summarizes
talaga yung ginastos. Kung magkano talaga yung amount na nasa
and combines all of the subsidiary accounts for a specific type. In
billing ng kuryente for example utility charges ng factory.
other words, it's a summary account that equals the sum of the
subsidiary account and is used to simplify and organize the
general ledger.
Direc t Ma t erials Direc t Labor Factory Overhead Control 25 760
Ac t ual cos t ing Ac t ualcos t ing To determine the factory overhead variance:
Fac t ory Overhead
Factory Overhead Variance 240
Ac t ual cos t ing
Factory Overhead Control 240
Ang actual na gastos natin tungkol sa Factory Overhead, meaning
mga indirect costs, ikinukulong muna sa isang controlling account. To closed factory overhead variance to cost of goods sold:

Cost of Goods Sold 240

Normal Costing. For example manufacturer tayo ng multifunctional Factory Overhead Variance 240
furniture, halimbawa may magpapagawa and job order siya kase
JOURNAL ENTRIES
customize. Importante yung products costs para alam mor in yung
presyuhan. Kung ikaw ay nakaactual costs, dapat lahat ng costs ay PERPETUAL INVENTORY PERIODIC INVENTORY
actual. Normally, yung mga indirect costs, yung mga factory METHOD METHOD
overhead, normally ginagawan mo na lang ng estimate. Ang tawag RAW MATERIALS PURCHASE
don ay applied. Yung percentage na yon ay nadedevelop from the
Dr. Materials (Stores) xxx Dr. Purchases xxx
past. Nakikita nila yung pattern. Kaya kapag sinabing normal costing, Cr. Vouchers Payable xxx Cr. Vouchers Payable xxx
ang materials and labor yung madaling madetermine. Yung FOH,
ginagamitan ng application rate. PURCHASE RETURNS
Dr. Vouchers Payable xxx Dr. Vouchers Payable xxx
Direc t Ma t erials Direc t Labor Cr. Materials (Store) xxx Cr. Purchase Returns xxx
ISSUANCE OF MAtERIALS
Ac t ual cos t ing Ac t ualcos t ing
Fac t ory Overhead
Applied

Standard Costing. Lahat ay applied.

Direc t Ma t erials Direc t Labor

Applied Applied JOB ORDER AND PROCESS COSTING
Fac t ory Overhead
Methods of Costing as to Cost Accumulation:
Applied

Job Order Costing
FACTORY OVERHEAD CHARGED TO PRODUCTION
- Nature of Products. Job order costing is
At the end of the period, both applied factory overhead and factory heterogenous. It can be physically identified. Medyo
overhead control are closed. iba iba yung appearance and style nung product
that’s why maiidentify mo kung sino ba si Product A,
Factory Overhead−Factory Overhead Control=Factory Overhead Variance Product B, and so on.

Overapplied is credit and Underapplied is debit. - Cost Accumulation ( By Job Orders). Kapag
identifiable, for example, construction company, may
Applied factory overhead is yung estimated amount lang natin ng
tinatrabaho kayo ng building sa silang, general trias, it
FOH na binased natin sa past events. While, Factory overhead
is easily identifiable kung anon a yung mga
control, is the amount of cost we actually incurred.
nagagastos mo kase magkakaiba naman sila. It can be
specifically segregated.
To charge overhead to production:
- When is Unit Cost Computed (Upon Completion).
Work in Process 25 760 Kapag natapos mo na yung isang job, doon mo lang
maiidentify kung magkano lahat ng materials, labor,
Applied Factory Overhead 25 760
and overhead mo.
To take up factory overhead incurred:
- Unit Cost Computation.
Factory Overhead Control 26 000
production cost per job
Sundry Credits 26 000 number of units
Production cost per job means yung total nung
To close applied factory overhead to factory overhead control:
materials, labor, overhead, that’s the total
Applied Factory Overhead 25 760 manufacturing costs or production ng job.
 Number of units ng job na yon. Kung ilan naman yung
nirequest niya sayo. For example, in pencil, may
nagrequest sa pencil manufacturer nag awing
customize yung pencil na may nakatatak talaga na
NUD, magkakaroon na sila ng specific process para
don which would entail specific costing na. Magiging
by job na yon.

 Process Costing
- Nature of Products. Process costing is homogenous.
Pare pareho yung itsura nila kaya hindi sila easily
identifiable. Hindi na natin maidentify which is which.

- Cost Accumulation (By Departments or Processes).

For example, yung mga products ay pencil. Since
magkakamukha naman sila, pwede silang gawin ng
sama sama or by department. Merong department na
naghihiwa ng wood, department na nakaassign for
the coloring of the pencil, for the packaging of it etc.

- When is Unit Cost Computed (End of Costing Period

– Usually a Month). Dahil by batch naman yung
proseso, by department, ang unit cost ay
nacocompute by a certain period. Pwedeng uwian mo
na ng February, ng March, etc.

- Unit Cost Computation.

departmental costs
equivalent units of production

Departmental costs is yung total costs ng department.

JOB ORDER COSTING

Costing by products, job or work orders, or by contracts.

ELEMENTS OF PRODUCT COST IN JOB ORDER COSTING

 Direct Materials Cost. This refers to those items that form

part of the finished product and which can be measured
and directly charged to the product.
 Direct Labor Cost. This refers to cost of labor expended in
the manufacture of a product, and which can be directly
charged to the product.
 Factory Overhead. This is also known as manufacturing
expense or burden. It refers to the indirect element of
cost. An example of it are the following: indirect materials,
indirect labor, factory supplies, depreciation of factory
building, and factory insurance.
 Windy Corporation buys all of its materials and supplies from the
Oregon Company and is allowed a trade discount of 10%.
Purchases during the month were P 400,000 before the discount.

Journal Entry:
Materials 360 000
Vouchers Payable 360 000

Quantity Discount. It represents cost savings for volume purchases.

It is also an incentive offered to a buyer that results in a decreased
cost per unit of goods or materials when purchased in greater
numbers. It is not given explicit accounting recognition in the books.

Cash Discount. It is deductions from the invoice price when

payment is made within the discount period. Its purpose is to
encourage prompt payment. It is recorded as purchase discount by
the buyer and sales discount by the seller.
ACCOUNTING FOR MATERIALS COST
CONTROL OF PRODUCTION COST DEFINED Purchase Discount. It is deducted from purchases to arrive at net
purchases.
Effective control of the elements of production cost maximizes
manufacturing efficiency, reduces unit costs and enables The list price of a merchandise purchased is P 500,000 less 20%
management to attain desired inventory levels. and 10%, with credit terms of 5/10, n/30. This means that trade
discounts are 20% and 10%, and the cash discount is 5% if
CONTROL OF MATERIALS COST payment is made in 10 days.
Estimates of materials cost, in total and per unit. Materials
The full amount of the invoice is paid if the payment is made
requirements (in terms of quantity per unit and quality) are
after 10 days and within the credit period of 30 days.
determined based on product design and specifications at each
stage of the manufacturing process.
List price 500,000
First trade discount (20% x (100,000)
STORES LEDGER CARDS AND BIN CARDS P 500,000)
STORE LEDGER CARDS 400,000
Second trade discount (10% (40,000)
- The perpetual records of the different items in the storeroom. x P 400,000)
- Items received and issued for each class are posted to the Invoice price 360,000
corresponding card and the resulting balance must be equal to
Cash discount (5% x (18,000)
the inventory for said item.
360,000)
- The total of all balances per stores ledger cards must therefore
be equal to the inventory in the storeroom as of the same date. Payment within the 342,000
 To be assured of this, the balances per stores ledger cards discount period
are compared with the physical inventory on chosen dates
during the accounting period. The journal entry to record the purchase is:
- If there is a difference between the balance per Purchases 360 000
books and the inventory per physical count, the Accounts Payable 360 000
possible cause thereof is determined.
- If a difference still exists after eliminating - Note that the trade discounts are not recorded.
significant causes, the balance per books is
adjusted by a corresponding debit or credit to The journal entry to record the payment of the invoice within the
factory overhead (inventory adjustment) discount period is:

Accounts Payable 360 000

PURCHASE DISCOUNTS Cash 342 000
Purchase Discount 18 000
Trade Discount. It is generally given in terms of percentage (15%,
10%, 5%) and are used to convert single price list into a series of
price lists for different types of middlemen. It is not recorded on the
books because purchases are recorded on the books net of the Materials are purchased for P200 000, 2/10, N/30. Sound
discount. financial management dictates that the P4 000 discount be
availed of on the 8th or 9th day after purchase. The entries using
the allowance method are given below:
 Material DEF 240 .10 .80
Upon Purchase: (200/500 lbs.)
x P 600
Materials 196 000
Allowance for Purchase Discount 4 000
Vouchers Payable 200 000

Upon Payment within the Discount Period:

Vouchers Payable 200 000

Cash 196 000
Allowance for Purchase Discounts 4 000

Upon Payment after the Discount Period:

- Freight bills are not based solely on weights but also on
Vouchers Payable 200 000 peso values because of insurance coverage so that if there
Purchase Discounts Lost 4 000 is a great disparity in relative weights and the bill is
Cash 200 000 significant in amount, allocation of freight cost may be
Allowance for Purchase Discount 4 000
revised to consider both factors.
- Freight cost may also be charged to purchases at a
predetermined rate based on estimated freight costs and
FREIGHT IN the corresponding estimated purchases in terms of peso
value, weight or volume.
Freight cost for purchases may be treated as: - Freight costs are charged to Freight In and applied to the
corresponding debit for materials purchased (such as
A. Addition to Purchase Cost. Specific freight charges may
Materials, Work in Process, and Factory Overhead
either be directly added to purchase cost or accumulated
Control).
in the Freight In account and applied to purchases at a
 Any year-end balance is treated in a similar
predetermined rate.
manner as that accorded to factory overhead
 Directly added to purchase cost
variance, that is:
 It is closed to cost of goods sold or to income and
Freight cost of P 600 is incurred on 10,000 units of
expense summary
material ABC bought for P.55 The purchase of
 If the balance is significant, it is prorated to cost of
material ABC is posted to the stock cards at the unit
goods sold and the inventories of materials, work in
cost of P.61 considering the addition of freight cost
process and finished goods.
per unit of P .06 (or P600/10,000 units) as shown
below.
B. Factory Overhead. This treatment requires the inclusion
Invoice price (10,000 units x P.55) P 5,500 of estimated freight in cost in the computation for
Freight In 600 predetermined factory overhead rate so that it is
Total P 6,100 automatically included in production cost upon recording
Divide by 10,000 units
Unit cost P .61
the applied amount. Freight in for supplies purchased for
the sales and administrative departments are charged to
The entry to record the acquisition would be: the corresponding expense accounts.
Materials P 6,100 MATERIALS HANDLING ACCOUNTS
Accounts Payable P 6,100

 Accumulated in the Freight In account and

applied to purchases at a predetermined rate
Freight cost of P 600 is incurred on 10,000 units of
material ABC bought for P.55 Assume that purchases
consist of P 6,000 units of material ABC @ P .20 and
2,400 units of material DEF @ P .70 with total weights
of 300 and 200 pounds, respectively.
AVERAGE COSTING METHOD: ADJUSTMENT ARISING FROM
RETURNS
When the average costing method is in use and there are returns to
suppliers, the average unit cost may be different from the
acquisition cost of the materials being returned.

Allocated Freight In Unit  The difference is treated as a debit or credit to factory

Freight Per Cost overhead (inventory adjustment).
In unit 
Material ABC 360 P .06 P .26
(300/500 lbs.)
x P 600