Accounting for labor

Labor
 physical or mental effort expended in manufacturing a
product.
 Labor cost is the price paid for using human resources.
Factory payroll costs is divided into:
 Direct labor
Represents payroll costs that are allocated directly to the
product and is debited to the work in process account.
 Indirect labor
Labor costs incurred for a variety of jobs that are related to
production process but are considered either too remote or
too insignificant to be charged directly to production.
 Charged to Factory overhead control account.
Included are salaries wages of factory superintendent,
supervisors, janitors, clerks, factory accountants and
timekeepers.
Procedures for recording payroll costs:
1. Recording the number of hours used in total and by job
2. Recording the quantity produced by the workers
3. Analyzing the hours used by employees ti determine how time is to be
charged
4. Allocation of payroll costs to jobs and factory overhead accounts
5. Preparation of the payroll, including computation and recording of the
employees gross earnings, deductions and net earnings
Wages plans
Different wage plans that are being used by companies
Should be approved by the union and should comply with regulations of
government agencies
Hourly rate plan, piece rate plan and modified wage plan
a. Hourly rate plan
 A definite rate per hour is set for each employee
 Wage is computed by multiplying the rate per hour by the number of hours
worked
 Simple to use but does not provide incentive for the employee to achieve a
high level of productivity
 Employee is paid for merely being on the job
b. Piece rate plan
 Earnings are calculated by multiplying the employee’s output by the rate per piece
 Provides incentive for the employee to produce more
 Might sacrifice quality to maximize earnings
c. Modified wage plan
 Combines the features of hourly rate and piece rate plans
 Even if an established quota of production is not attained by an employee
 If established quota is exceeded, an additional payment per piece would be added
to the minimum wage level
Controlling Labor Cost
 Maintaining labor record is the responsibility of the time keeping and payroll
departments.
 The time keeping department accounts for the time spent by the employees in
the factory and maintaining clock cards, time tickets and production reports.
 The payroll department computes each employee’s gross earnings, the amount
of withholding and deductions and the net earnings to be paid to the employee.
 Completing and maintaining payroll records, employee’s earning records, and
payroll summaries.
Accounting for Labor costs
The hour worked should be recorded on a time ticket or individual
production report.
 Time ticket shows the employee’s starting and stopping time on each
job, the rate of pay, and the amount of earnings.
 Individual production reports are used when labor costs are calculated
using piece rates.
 These were sent to the payroll on a daily basis. The pay rates and
gross earnings are entered and the reports are forwarded to
accounting.
 Cost accountants sort the time tickets an d production reports and
charge the labor costs to appropriate jobs or department and factory
overhead.
 The accounting department records the earnings in factory overhead
ledger and on the labor cost summary .
 The labor cost summary is used to source for makinga general journal
entry to distribute payeoll to appropriate accounts.
 Labor cost summary shows the employee’s regular time which is
charged to Work in process and the overtime maybe charged to factory
overhead or allocated partly to jobs and overhead.
 Go to excel Illustration
Employee’s Payroll taxes
 Include social security premium, pag ibig fund contribution, and
philhealth premiums.
 Employers are responsible for periodically reporting the taxes to the
appropriate government agencies.
 Failure to reports to pay taxes due are subject to civil and in some
cases criminal penalties.
1. SSS Contribution
 Social Security System requires employers to pay Social security taxes
on wages and salaries equivalent to 55% of the total contribution
credited to the employee.
 Benefits- pension upon retirement (lump sum of 18 months x computed
monthly pension, and on the19th month an dup to the death of the
retiree, monthly pension will be credited to the retiree’s bank account),
salary, educational loan, maternity leave with pay, housing loan and
sometime calamity loan, burial benefit.
 Go to excel
2. Philhealth contributions
 The amount contributed by the employer is equal to the amount
deducted from the employee’s salary. Maximum deduction is P375 for
salaries P30,000 and over.
 Benefits- when employee is hospitalized/
 The amount reimbursable allowed by law are professional fees, room,
medicine and other expense. The amount paid directly to the
hospital.
3. Pag ibig contribution
 The amount deducted from the employee’s salary is equivalent to 3%
if the basic or P100 whichever is lower.
 The employer’s contribution is the same.
 Benefits are educational loan, salary loan, housing loan.
 Upon retirement, the total amount deducted from the employee’s
salary and employer’s contribution plus dividend earned will be
returned to the employee.
Classification of labor
1. Direct labor –
labor identified with particular products which is considered feasible to
be measured and charged to specific production order cost sheet.
2. Indirect labor –
 Labor identified with particular products but which is not considered
feasible to measure and charge to a specific production order
 Labor expected for the benefit of production in general and not
identified with particular products
3. Labor overhead
 Waiting time or idle time
 Cot of non productive hours of direct labor caused by lack of work,
waiting for materials delays from scheduling, machine breakdown and
machine set up.
4. Charged to Factory overhead control
 Example: Garcia spent 36 hours on Job 101 and was idle for 4 hours
during the week. His rate is P50 per hour for a 40 hour week.
To record Garcia’s wages:
Work in process Job 101 (36 hrs x P50) P1,800
Factory overhead control idle time (4 hrs x P50). 200
Accrued payroll 2,000
Make up pay
 Payments to an employee based solely on the number of units produced, the employee is
said to be paid at a “piecework”.
 Many companies paid minimum wage but they can earn more if they produce more
 If the output multiplied by the piece rate results in an amount less than the guaranteed
wage, the difference is charged to factory overhead control
 If the output multiplied by the piece rate results in an amount greater than the
guaranteed wage, the employee is paid the amount earned.
Assume Mr. Garcia is paid P15 per piece produced, and during the week he produced 80
pieces. If the guaranteed weekly pay is P1,500 then the difference is charged to factory
overhead control.
 The entry to record:
Work in process Job 101 (80 xP50) 1,200
Factory overhead control make up pay 300
Accrued payroll 1,500
If the guaranteed weekly pay is P1,000:
Work in process Job 101 (80 xP50) 1,200
Accrued payroll 1,200

Overtime premium
Amount paid in excess of the regular rate to employees working
in excess of 8 hours in a day or working during holidays or their
rest day.
Regular earning represent the total hours worked including the
overtime hours by the regular rate.
Overtime premium represents the overtime hours multiplied by
the premium rate. It usually a fraction of the regular rate.
Example: Mr. Garcia worked 45 hours during the week and paid
a time and half for overtime:
Work in process Job 101 (45 hrs x P50) 2,250
Factory overhead control (5 hours x P25) 125
Accrued payroll 2,375
If the Ot results from the requirement of specific job, then all
the amount will be charged to Work in process.
Shift premium
Extra pay to work during less desirable evening shift (2 pm to
10 pm) or night shift (10 pm- 6 am) , the shift premium or shift
Example: Mr Garcia is assigned to night shift and is paid a shift premium
of P20 per hour, the entry
Work in process Job 101 (40 hrs x P50) 2,000
Factory overhead control (40 hours x P20) 800
Accrued payroll 2,800
 Employer’s payroll taxes
Amount remitted for SSS premiums, PhilHealth contributions and Pag-ibig
contributions charged to factory overhead control.
Gross earnings of employees
Wages – gross earnings of an employee who is paid by the hour for only
the actual hours worked.
Salaries – gross earnings of an employee who is paid a flat amount per
week or month regardless of the hours worked in a period.
Gross earnings – the compensation of a an employee and includes regular
pay and overtime premium.
Payroll Deductions:
Employee’s income tax
the amount of tax to be withheld each period depends on the following:
amount of employee’s earnings
frequency of the payroll period, and
classification of the taxpayer and number of qualified dependents
 SSS premiums levied against both the employer and the employee
based on the table provided
 PhilHealth contributions – levied against both the employer and
employee in equal amount based on the table provided
 Pag ibig contributions – levied against both the employer and
employee in equal amounts based on table provided.
 
 Accounting for Factory Overhead

 Factory overhead refers to the cost pool used to accumulate all indirect manufacturing costs.
Examples:
 Indirect materials and indirect labor
 Heat, light, and power for the factory
 Rent on factory building
 Depreciation on factory building and factory equipment
 Maintenance of factory building and factory equipment
Categories
1. Variable overhead
 Costs that vary in direct proportion in the level of production, within the relevant range
 The greater the number of units produced, the higher the total variable costs
 Variable cost per unit remains constant as production either increases or decreases
2. Fixed overhead
 Costs that remain constant within the relevant range regardless of the varying level of
production
 The total remains constant but the fixed cost per unit varies inversely with the
production
 The greater the number of units produced, the lower the fixed cost per unit
3. Mixed overhead
 Factory overhead costs are neither wholly fixed nor wholly variable in
nature but have characteristics of both
 Must ultimately be separated into their fixed and variable components
for purposes of planning and control
Budgeting Factory overhead costs
 Budgets are management’s operating plans expressed in quantitative
terms, such as units of production and related costs.
 After factory overhead had been classified as either fixed or variable,
budgets can be prepared for expected levels of production which
permits the company to prepare flexible budget
Factors to be considered in the computation of factory overhead rate
1. Base to be used
a. Physical output
b. Direct materials cost
c. Direct labor cost
d. Direct labor hours
e. Machine hours
2. Activity level to use
a. Normal capacity
b. Expected actual capacity
3. Inclusion or exclusion of fixed factory overhead
a. Absorption costing -method used for cost accounting
b. Direct costing -method used for internal reporting (management service)
4. Use of single rate or several rates
a. Plant wide or blanket rate -one rate for all producing department
b. Departmentalized rate- one rate for each producing department
1. Base to be used
 be related to functions represented by the overhead cost being applied.
 If factory overhead is labor oriented, the appropriate base to use is direct
labor hours or direct labor cost.
 Investment oriented related to machinery, then the most appropriate base
will be machine hours
 Material oriented then the material cost might be most appropriate base
 Simplest base is the physical output or units of production
a. Direct labor hours
 Most commonly used base Or denominator in the computation of the
predetermined factory overheads rate.
 direct relationship between factory overhead and direct labor hours
and there is a great disparity in hourly wage rates
Factory overhead rate (FOR) = estimated factory overhead/estimated
direct labor hours
= factory overhead rate/direct labor hour
b. direct labor cost
Established relationship between direct labor and factory overhead
FOR = (Estimated factory overhead/estimated direct labor cost) x 100
= Percentage of direct labor cost
c. Machine hours
Direct relationship exist between factory overhead cost and machine
hours
Each machine will have a time record to summarize the total machine
hours used for each job
FOR = Estimated factory overhead/ estimated machine hours
= factory overhead rate/machine hour
d. Direct material cost
 directly related to direct material cost as in cases where direct
materials are a very large part of total cost
 FOR for each product
 FOR =(Estimated factory overhead/estimated direct material cost)
x 100
= Percentage of direct material cost
e. Units of production
 simple method to use because units produced are readily
available
 appropriate when a company or dept. manufactures only one
product
 FOR = Estimated factory overhead/estimated unit of production
= factory overhead rate/unit of production
Go to illustration
Steps in computation of departmentalized overhead rate
1. Divide the company into segments called departments, cost centers, to
which expenses are charged.
2. Estimate the factory overhead for each department (direct departmental
charges + indirect departmental charges)
3. Select and estimate the base to be used by each department
4. Allocate the service department costs to the producing departments
5. Compute the factory overhead rate (similar to computation using blanket
rate).
 In a departmentalized company, factory overhead should be budgeted for
each department.
 Management must make sure that the service department costs have
been allocated to the producing departments.
Typical allocation bases for common costs
 Grouped into four:
a. Labor related common costs
b. Machine related common costs
c. Space related common costs
d. Service related common costs
Common costs should be analysed carefully to determine the most appropriate
allocation base.
The typical allocation bases for common costs are shown below:
Methods of allocating Service Department cost to Producing departments
a. Direct method
 Most widely used method
 It allocates each service department’s total cost directly to the
producing departments
b. Step method
 Also called sequential method of allocation
 Recognizes service rendered by service departments to other service
departments and is more complicated because it requires a sequence
of allocation
c. Algebraic method
 Called reciprocal method
 Allocates costs by explicitly including the mutual services rendered
among all departments
 Go to illustration
2. Capacity Production
 Determine what capacity of production should be adopted in the estimation of
manufacturing overhead and estimation of the base to be used for allocation:
a. Theoretical, maximum or ideal capacity
 Capacity to produce at full speed without interruptions
 Gives no allowance for human capacity to achieve the maximum nor due allowance for
any circumstances that might result to a stoppage of production within or not within
the control of management
 Plant is assumed to function 24 hours a day, 7 days a week or 52 weeks a year without
any interruptions in order to yield the highest physical output possible
b. Practical capacity
 Capacity of production that provides allowance for circumstances that might result to
stoppage of production
c. Expected actual capacity
 Capacity concept based on a short range outlook which is feasible only for firms
whose products are seasonal or
 where the market or style changes allow price adjustments according to competitive
conditions and customer demands
d. Normal capacity
 Capacity of production taking into consideration the utilization of the plant facilities to
meet commercial demands served over a period long enough to level out the peaks
and valleys which come with seasonal and cyclical variations.
 Commonly used in the computation of overhead rates
Methods of accumulation of Factory overhead costs
a. Non controlling account system
 An account for each kind of overhead expense according to their nature is
opened in the ledger and charges to such account are made upon incurrence of
the expense
b. Controlling account system
 An overhead account is opened in the general ledger wherein the overhead
incurred are charged and a subsidiary ledger is maintained to show in detail the
nature and account of the expense
 Actual overhead costs are incurred daily and recorded periodically in the
general and subsidiary ledgers.
 Subsidiary ledgers permit a greater degree of control
 Factory overhead costs as related accounts can be grouped together and the
various expenses incurred by different departments can be described in detail.
 Computation of overhead chargeable to individual cost sheets – (factory
overhead applied)
 After the factory overhead application rate has been determined, it is used to
apply estimated factory overhead costs to production
 Applied factory overhead can be computed by multiplying the actual factor
incurred per cost sheet x predetermined overhead rate.
Entry to charge production with applied overhead:
Work in process -overhead xxxx
Factory overhead applied xxxx
Factory overhead variance
 The difference between the actual factory overhead as shown in the
factory overhead control and the overhead charged to production
(factory overhead applied).
Classification of manufacturing overhead variance
a. Underapplied overhead – the difference between the actual factory
overhead which is more than the factory overhead applied
b. Overapplied overhead – difference between actual factory overhead
which is less than the factory overhead applied.
Causes pf the manufacturing overhead variance:
1. Spending variance – the variance due to expense factors
2. Idle capacity or volume variance – the variance due to difference in
volume and activity factor.
Computation of manufacturing overhead variance:
1. Spending variance
Actual factory overhead incurred xxxx
Less: Budget allowed based on capacity used
Fixed factory overhead xxxx
Variable factory overhead xxxx xxxx
Spending variance xxxx
2. Idle capacity variance
Budget allowed based on capacity used xxxx
Less: Factory overhead applied xxxx
Idle capacity variance xxxx
Accounting for overhead variance
During the period prior to the closing of the books,
 overhead variance is not recognized in the account.
 When interim financial statements are prepared, the variance in deferred and not disposed
immediately.
At the end of the accounting period
 If the amount of the overhead variance is immaterial or it is established to be the result of
inefficiency, it is closed to cost of goods sold.
 If the variance Is material and found to be the result of an erroneous computation of
predetermined overhead rate, such variance is distributed to the cost of goods sold, finished
goods inventory and the work in process inventory.
 Go to illustration
Activity Based Costing
 In many highly automated manufacturing businesses the significance of
direct labor cost has diminished and overhead costs have increased.
 Costs that used to be classified as indirect such as quality control, computer
programming, trouble shooting, and middle level management costs have
become major components of total production cost.
 The need for more representative overhead application bases has led to
activity based costing (ABC) also known as transaction costing.
 Those activities (transactions) that consume overhead resources
 Are identified and related to the costs incurred.
 Basic premises is that overhead costs that are caused by activities are
traced to individual product units on the basis of frequency of consumption of
overhead resources bye ach product.
Activity based costing is a simple concept which can provide accurate
information about a particular product’s consumption of overhead resources.
 An approximation of a user’s fee, which refers to the process of charging for
services consumed by users of the service.
 Based on the premise that if a product consumes many resources (activities)
that comprise overhead,
 it should bear a greater share of overhead costs that other product that does
not consume as any activity units.
Five Basic Steps in Applying ABC
1. Assemble similar actions into activity centers
2. Classify costs by activity center and by type of expense
3. Select cost drivers
4. Compute a cost function to associate costs and cost drivers with resource use
5. Assign cost to the cost objective
1. Assemble similar actions into activity centers
 Combine actions into activity centers
 classify them with different levels of activities namely, unit level activities, batch level
activities, product level activities, and facilities level activities.
 Unit level activities are performed each time a unit is produced.
Example assembly, stamping and machining. Costs of these activities vary with the
number of units produced.
 Batch level activities are performed each time a batch of units is produced.
Costs of these activities vary to the number of batches but remain fixed for all units in
the batch.
Example machine set ups, order processing and materials handling.
 Product level activities are those performed as needed to support the production of
each different type of product. Example production, scheduling, product designing and
parts and products testing.
 Facility level activities are those which sustain a facility’s general manufacturing
process example plant supervision, building occupancy, and personnel administration.
2. Classify costs by activity center and by type if expense.
 Costs that are traceable to the activity center should be assigned directly to
activity centers.
 Other costs shared by two or more activity centers should be assigned according
to some cost driver that controls the utilization of the costs involved.
3. Select the cost drivers
 Cost drivers are the links between cost, activity and product.
 Indirect costs such as factory overhead need links or drivers to link a pool of
costs in an activity center to the product.
4. Calculate a cost function
 A cost function is used to translate the pool of costs and cost driver data into a
rate per cost driver unit or a percentage of other cost amounts just like the plant
wide or departmentalized factory overhead rate.
 For example if the costs of the set up activity center is P25,000 and the
selected cost driver is 500 hours, then the cost function will be P50 per setup
hour (25,000/500 hours)
5. Assign cost to the cost objective
 Allocate costs to the different users of the resource
 Done by multiplying the rate determined by the actual data of the cost driver. If
the actual setup hours is 40, then the allocated cost will be P2,000 (40 hours x
P50)
Go to illustration
Process costing
 Used when there is continuous production of identical units, there is
no obvious start or finish because the manufacturing process us b-
endlessly repetitive
 All manufacturing costs are allocated first to departments or
processes.
 Each department determines how much of the total costs incurred by
the department is distributed to units still in process and how much is
attributable to completed units.
Process costing methods are used by the following;
 Industries producing chemicals, petroleum, textiles, steel, rubber,
cement, pharmaceuticals, shoes, plastics, sugar and coal.
 Firms manufacturing such as screws, bolts, and small electrical parts
 Assembly type industry which manufactures computers, automobiles,
airplanes, and household appliances.
 Service industries such as gas, water, and heat.
Characteristics of Process Cost System:
a. Costs are accumulated by department or cost center
b. Each department has its own general ledger Work in process
Inventory account. This debited with the processing costs incurred by
the department and credited with the cost of completed units transferred
to another department or to finished goods inventory.
c. Equivalent units are used to restate- work in process inventory to
terms of completed units at the end of a period
d. Completed units and their corresponding costs are transferred to the
last department or to finished goods inventory, By the time units leave
the last processing department total costs for the period have been
accumulated and can be used to determine the unit cost of each and
total finished goods.
e. Total costs and unit costs for each department are periodically
calculated and analysed with the use of department cost of production
report.
Comparison of Job order costing and process costing
1. Job order cost accumulation system is most suitable when a single production
of batch or products is manufactured according to a customer’s specifications.
 process costing is used when products are manufactured either mass
production techniques or continuous processing. Homogeneous produvts are
manufactures in large volume.
2. Three elements of a product’s cost (DM<DL and FO) are accumulated according
to identifiable jobs.
 Under process costing, the product’ cost are accumulated according to
department or cost center.
3. Computation of unit cost –
 The unit cost of a product results from dividing the accumulated cost by a
measure of volume.
 The denominator under job order costing is the actual units while process
costing is the equivalent units of production.
 Equivalent unit refers to the amount of work actually performed on products
with varying degrees of completion, translated to that work required complete
an equa number of whole units.
4. Time of computing the unit cost- Job order costing, unit cost is computed upon
completion of the job. Process costing the unit cost is computed at the end of the
month.
Production by Department:
 When units are completed in one department, they are transferred the next
processing department accompanied by their corresponding costs.
 A complete unit of one department becomes the raw materials of the next
department until the units reach finished goods.
 The output of Department 1 becomes the input of Dept. 2. Dept. 2 receives both the
units produced by Dept. 1 and the costs carried by such units.
 When Dept. 2 completes its processing, it transfers out the units and the costs it
received from Dept. 1 plus any costs incurred while working on the units.
 The costs of a unit grow larger as it progresses along the assembly line from one
dept. to the next.
 Example:
 Sunbloc manufactures chairs and uses three departments to produce one chair.
Dept. 1 cuts and cleans the wood at an average rate of cost of P45 per unit. The
wood are then moved to Dept. 2, where they assembled and put together at an
average cost of P15. The next stop is dept. 3. Where they painted at an average of
P25 per unit. The completed chairs are transferred from Dept. 3 to finished goods
inventory. The total unit cost of one finished chair is
 Dept. 1 45.00
 Dept. 2 15.00
 Dept. 3 25.00
 Unit cost 85.00
 Generally, the cost per unit increases as units flow through each dept. the unticost
can decrease when units pass through a dept. if volume is added to the product.
System Flow
 Units and cost flow together through a process cost system, the following equation
summarizes the physicl flow of units in a department:
Units to account for Units accounted for
Beginning units in process Units completed & transferred
+ +
Units started in process or units completed on hand
Received from previous dept.
+ +
Increase in units due to addition units in process at the end
Of materials
Product Flow
Ways of product flow through a factory:
1. Sequential product flow
 The initial raw materials are placed into process in the first dept. and flow through every
dept. in the factory.
Additional materials may or may be added in the subsequent depts.
 All items purchased go through the same processes in the same sequence.
2. Parallel product flow
 Certain portions of the work are done at the same time and brought together then for the
final process and upon completion transferred to finished goods inventory.
3. Selective
 The product departments within the factory , depending upon the desired final product.
Several products are produced from the same initial raw materials.
Procedures – Direct materials, Direct labor and Factory overhead
Direct materials – issuance of direct materials to Dept. 1 during the period:
Work in process – Dept. 1 xxxx
Materials xxxx
 Ifdirect materials are added in other dept., the same entry would be the same.
Direct labor
Distribute direct labor costs
Work in process – Dept. 1 xxxx
Work in process -Dept. 2 xxxx
Work in process-Dept. 3 xxxx
Payroll xxxx
Factory overhead
 May be applied using either of the two methods:
 First method is similar to that used in job order costing, applies factory overhead
to work in process at a predetermined application rate based on normal capacity
Work in process – dept.1 xxxx
Work in process- Dept. 2 xxxx
Work in process- Dept. 3 xxxx
Factory overhead applied xxxx
  Second method charges actual factory overhead costs incurred to work in
process.
The cost of production report
 Analysis of the activity in the department or cost center for the period.
All cots chargeable to a dept. or cost center are presented according to
cost elements.
 Total and unit costs are determined and summarized on a cost of
production report.
 It emphasizes that process costing requires an orderly approach to
assigning costs to products
Steps in preparing the cost of production report:
 Step 1- The Quantity schedule
 Accounts for the physical follow of units into and out of departments
 All units started in the dept. must be accounted for and also the
disposition of these units, that is, whether they are transferred to the
next dept., lost, or remain in the dept. (complete or incomplete)
 Concerned only with whole units, regardless of their stages of
completion.
Step 2 – Calculate equivalent units and unit costs
 Equivalent production equals total units completed plus incomplete
units restated in terms of completed units.
 The problem lies in the restatement of incomplete units in terms of
completed units.
 Incomplete units are accounted for in work in process inventory until
they are completed and transferred to finished goods inventory.
 To compute equivalent production, an analysis must be made of the
stage of completion of work in process inventory, subdivided into
direct materials, direct labor and factory overhead.
 For example, direct materials maybe added at one specific point in
production, such as beginning or at the end of the process. If Direct
materials are added at the beginning, all work in process will have
complete direct material cost.
 When direct materials are added at the end of the process, work in
process inventory will not have ay direct materials from that dept.
Direct materials may also be added continuously in this case
 The unit cost in the dept. is computed by dividing the cost incurred in the
dept., for each element by the equivalent production.
The formula is:
First in First out
 Equivalent unit cost = Costs added during the period / equivalent units
(Work done this period)
Weighted average method
 Equivalent unit cost = Cost last period + cost added this period/ Equivalent
units (Work done last period + work done this period)
Step 3
 Determine the costs to be accounted for (costs charged to the dept.)
 There maybe some units in the beginning inventory that maybe partially
complete: and the costs of direct materials, direct labor and factory
overhead that were assigned to theses units last period will become the
cost of the beginning inventory and must be accounted for.
 The dept. not the first dept. will receive costs from other dept. when the
units from these depts. Are received in its operations.
 In addition, each dept. will incur direct materials, direct labor, and factory
overhead in its own processing. The total of theses costs must be
determined so that they can be accounted for.