Definition of
Cost Accounting
Cost
Accounting involves the measuring, recording, and reporting of product costs.
From the data accumulated, the unit cost of each product is determined. In
addition, cost accounting provides data that can be used by management to
measure performance and control costs.
Comparison of
Cost Accounting with Financial Accounting
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Cost
Accounting
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Financial
Accounting
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1. Looks to the future
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1. Looks to the past
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2. Subjective
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2. Objective
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3. Reports mainly for internal consumption
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3. Reports mainly for external
consumption
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4. Mainly to cut costs and expenses
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4. Covers the whole field
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Accounting
for Manufacturing Operations
Accounting for manufacturing
operations ranges from the simple to the complex. In its simplest form, the
accounting is basically an extension of the accounting for merchandising
operations when periodic inventory procedures are used. Under this type of
accounting, manufacturing costs are recorded as incurred. At the end of an
accounting period, physical inventories are taken for finished goods, work in
process, and raw materials. As in a merchandising company, closing entries are
made to record the ending inventories and the cost of goods manufactured.
In its more
complex form, the accounting for manufacturing operations involves perpetual
inventory procedures and an extensive network of documents and accounting
records.
Summary of manufacturing and non-manufacturing costs
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Manufacturing Costs
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Direct Materials:
Materials that can be physically and conveniently traced to a product, such as wood in a table. |
Prime Cost
(Direct Materials + Direct Labor) |
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Conversion Cost
(Direct Labor + Overhead Cost) |
Direct Labor:
Labor costs that can be physically and conveniently traced to a product such as assembly line workers in a plant. Direct labor is also called touch labor cost. |
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Manufacturing Overhead:
All costs of manufacturing a product other than direct materials and direct labor, such as indirect materials, indirect labor, factory utilities, and depreciation of factory equipment. |
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Non-manufacturing Costs
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Marketing or selling costs:
All costs necessary to secure customer orders and get the finished product or service into the hands of the customer, such as sales commission, advertising, and depreciation of delivery equipment and finished goods warehouse. |
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Administrative Costs:
All costs associated with the general management of the company as a whole, such as executive compensation, executive travel costs, secretarial salaries, and depreciation of office building and equipment. |
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Job Order
Cost Flow
Direct materials, direct labor, and
factory overhead in a job order system are identical those in a simple
manufacturing system. The flow of costs in job order
Job Order
Cost Accounting
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Materials
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Work in
Process
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1-Purchases
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4- Materials used
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4- Direct materials used
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7- Cost of goods manufactured
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5- Direct labor
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6- Overhead applied
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Payroll
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Finished
Goods
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2-Factory labor incurred
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5-Distribution of payroll
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7- Cost of goods manufactured
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8- Cost of goods sold
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Factory
Overhead Control
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Cost of
Goods Sold
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Actual overhead incurred:
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6-Applied overhead
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8- Cost of goods sold
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3-Depreciation, Insurance, Repairs
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4-Indirect materials
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5-Indirect labor
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Key to Entries:
Accumulation
1-Purchase
Raw Materials
2-Incur
factory labor
3- Incur
factory overhead
Assignment
4-Raw
materials are used
5-Distribution
of payroll
6- Overhead
is applied
7-Completed
goods are recognized
8-Cost of
goods sold is recognized
Problem A
Selected
transactions of the GPC Company for January are as follows:
a.
Material
purchased on account, P40,000.
b.
Materials
requisitioned: P33,000 for production and P2,000 for indirect factory use.
c.
Total
gross payroll was P40,000, with withholdings of 12% income tax, 7.5% SSS, and P280 Philhealth.
d.
The
wages due to the employees were paid.
e.
Of
the total payroll, P32,000 was direct labor and P8,000 was indirect factory
labor.
f.
An
additional 10% is entered for employer’s payroll taxes, representing 7.5% SSS,
0.8% Philhealth, and 1.7% employees’ compensation.
g.
Various
factory overhead costs totaling P18,000 were incurred on account.
h.
Other
factory overhead consists of P2,100 depreciation, P780 expired insurance,
P1,250 accrued property taxes.
i.
Factory
overhead was transferred to the Work in Process account.
j.
Cost
of completed production to storage P92,000.
k.
Sales
on account were P80,000, 50% of which were collected. The cost of goods sold
was 75% of the sales price.
Required:
Prepare journal entries for these transactions.
Problem
1. Computation of Total Manufacturing Cost,
Cost of Goods Manufactured, and Cost of Goods Sold.
During the past year, the ABC Company
incurred these costs: direct labor, P2,500,000; factory overhead, P4,000,000;
and direct materials purchases, P1,500,000. Inventories were costed as follows:
Beginning
Ending
Finished goods.......................................................................... P250,000 P300,000
Work in process........................................................................... 450,000 550,000
Materials........................................................................................ 75,000 125,000
Required:
(1) Calculate
total manufacturing cost for the year.
(2) Calculate
the cost of goods manufactured for the year.
(3) Calcula
te the cost of goods sold for the year.
Direct Materials 75000+1500000-125000=....... 1450,000
DL 2500,000
FOH 4000,000
TMC .. 7,950,000
If wip beg is thrice as much as wip
ending, cost of goods manufactured is 500,000 tmc is 400,000. How much is wip
ending.
Tmc + wipbeg = wipend+ cgm
400 + 3x = x + 500
2x = 100
X =50
PROBLEM 2 Journal Entries for the Cost Accounting Cycle.
On January 1, the ledger of the DEF Furniture
Company contained, among other accounts, the following: Finished Goods, P25,000; Work in Process, P30,000;
Materials, P15,000. During January, the following transactions were completed:
(a) Materials
were purchased at a cost of P28,000.
(b) Direct
materials in the amount of P21,000 were issued from the storeroom.
(c) Storeroom
requisitions for indirect materials and supplies amounted to P3,200.
(d) The
total payroll for January amounted to P31,000, including marketing salaries of P7,500
and administrative salaries of P5,500. Labor time tickets show that P15,500 of
the labor cost was direct labor.
(e) Various
factory overhead costs were incurred for P12,000 on account.
(f) Total
factory overhead is charged to the work in process account.
(g) Cost
of production completed in January totaled P58,000, and finished goods in the
shipping room on January 31 totaled P18,000.
(h) Customers
to whom shipments were made during the month were billed for P88,000. (Also
record entry for cost of goods sold.)
Required: Prepare journal entries for the transactions,
including the recording, payment, and distribution of the payroll.
PROBLEM 3 Cost of Goods Manufactured
Statement.
GHI Company manufactures file cabinets
made to consumer specifications. The following information was available at the
beginning of March:
Materials inventory...................................................................... P12,800
Work in process inventory............................................................... 4,700
Finished goods inventory................................................................. 2,300
During March, materials costing P26,000
were purchased, direct labor cost totaled P19,300, and factory overhead was P12,500
(including P2,500 of indirect materials). March 31 inventories were:
Materials inventory...................................................................... P13,300
Work in process inventory............................................................... 6,800
Finished goods inventory................................................................. 2,800
Required: Prepare a cost of goods manufactured
statement for March.
PROBLEM 4
Cost of Goods Manufactured; Prime and Conversion Costs.
Rexaldo Company's purchases of
materials during June totaled P25,000, and the cost of goods sold for June was P130,000. Factory overhead was 200% of direct labor
cost. Other information pertaining to Rexaldo
Company's inventories and production for June is as follows:
Inventories Beginning Ending
Finished goods.................................................................... P42,500 P39,000
Work in process.................................................................. 15,500 17,000
Materials.............................................................................. 5,000 8,500
Required:
(1) Prepare a schedule of cost of goods
manufactured.
(2) Compute the prime cost charged to Work in
Process.
(3) Compute the conversion cost charged to Work
in Process.
PROBLEM 5 Job Order Cost Sheet; Over- or
Underapplied Overhead.
During June, the following
transactions took place at the Inoue Corp.
June 3 Purchased
materials, P30,000.
5 Requisitioned
materials from inventory, P20,000 (75% of these were direct; 25% were
indirect). Direct materials of P3,000
and indirect materials of P1,000 were for Job 00‑1. The remainders were for Job 00‑2.
7 For
Job 00‑2, returned P150 of direct materials and P200 of indirect materials.
8 Recorded
liabilities for payroll: direct labor,
P15,000 and indirect labor, P5,000. Of
the direct labor cost, 60% was for Job 00‑1; the remainder was for Job 00‑2.
10 Incurred
other factory overhead costs, P20,000 (all applicable to Jobs 00‑1 and 00‑2).
14 Applied
overhead at the rate of 200% of direct labor cost to Jobs 00‑1 and 00‑2, which
were completed and transferred to finished goods account today.
Required: Assuming that Jobs 00‑1 and 00‑2 were the only
jobs during the period and that all overhead (as recorded above) is the total
applicable overhead for these projects:
(1) Prepare
a job order cost sheet for each job.
(2) Determine
the difference between applied and actual overhead for the month.
PROBLEM 6 Manufacturing Costs.
The work in process account of Takeshi
Company showed:
Work
in Process
Materials P22,000 | Finished
goods P68,000
Direct labor 37,000 |
Factory overhead 55,500 |
Materials charged to the one job still
in process amounted to P5,000. Factory
overhead is applied as a predetermined percentage of direct labor cost.
Required:
Compute the following:
(1) The
amount of direct labor cost in finished goods.
(2) The
amount of factory overhead in finished goods.
PROBLEM
7
Aguila
Company was organized on January 1, 2011.
On the same date, 1,000, P50 par value, ordinary shares were issued in
exchange for property, plant and equipment valued at P60,000 and cash of
P15,000. The following data summarize
activities for 2011:
a)
Profit
for the year ended December 31, 2011 was P12,000.
b)
Raw
materials on hand on December 31 were equal to 25% of raw materials purchased.
c)
Manufacturing
costs were distributed as follows:
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Materials used
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50%
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Direct labor
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30%
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Factory overhead
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20% (includes depreciation of PPE,
P2,500)
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d)
Goods
in process remaining in the factory on December 31 were equal to 1/2 of the
goods finished and transferred to stock.
e)
Finished
goods remaining in stock on December 31 were equal to 25% of the cost of goods sold.
f)
Operating
expenses were 30% of sales.
g)
Cost
of goods sold was 150% of the operating expenses total.
h)
Ninety
percent of sales were collected during 2011.
The balance was considered collectible.
i)
Seventy
five percent of the raw materials purchased were paid for. There were no expense accruals or prepayments
at the end of the year.
Based
on the above, compute for the following:
1.Sales
2.Cost of Sales
3.Total Operating Expenses
4.Cash as of December 31, 2011
5.Total current assets as of December 31, 2011
6.Purchases
7.Total manufacturing cost
8.Total liabilities and equity as of December 31, 2011
PROBLEM
8
The following
information pertains to Budoy Company
a.
January
1 materials were 50% of December 31 materials
b.
Purchase
returns and allowances were 1% of net sales
c.
Manufacturing
cost was distributed as follows: Materials used 40%, Direct labor 25%, and
Factory overhead 35%.
d.
December
31 materials were 200% of materials used.
e.
Selling
expenses were 15% of net sales or 60% of operating expenses.
f.
Interest
expenses amounts to P27,000
g.
Sales
returns and allowances were equal to financial expenses.
h.
Finished
goods January 1 were 50% of the Selling and Administrative Expenses while
Finished goods December 31 were one third of total goods available for sale
i.
Net
profit was 7% of net sales or one fifth of gross profit on sales.
j.
There
were no incomplete units at the beginning of the year but December 31 Work in
process was one sixth of the cost of goods transferred to the warehouse.
Based
on the above, compute for the following:
1.
Ratio
of interest expense to net sales
2.
Net
sales
3.
January
1 Finished goods inventory
4.
Gross
Purchases
5.
Direct
Labor
6.
Selling
and Administrative Expenses
7.
Total
Goods Available For Sale
8.
January
1 Materials
