Sim - Acc 123 - 0

UNIVERSITY OF MINDANAO
Tagum College
Department of Accounting Education

Accountancy Program
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)
Course/Subject: ACC 123 – Cost Accounting and Control
Name of Teacher: Johnvir P. Torreon, CPA
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE.
THIS IS INTENDED ONLY FOR THE USE OF THE STUDENTS WHO ARE
OFFICIALLY ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Course Outline: ACC 123 – Cost Accounting and Control
Course Coordination: Johnvir P. Torreon, CPA

Email: torreonjohnvir@umindanao.edu.ph
Student Consultation: By appointment
Mobile: 0950-477-8703/ 0965-157-6421
Phone: None
Effectivity Date: June 2020
Mode of Delivery Distance Education Delivery (DED)
Time Frame 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 3
Attendance Requirements: For online sessions: minimum of 95% attendance
For 1-day on campus/onsite review: 100%attendance;
for 1-day on-campus/on-site final exam: 100%
attendance
Course Policy
Areas of Concern Details
This 3-unit course self-instructional manual is

designed for distant learning mode of
instructional delivery with scheduled face to face
or virtual sessions which can be done using
LMS, traditional contact (via cellphone/telephone
and SMS) and social media platforms (e.g. email,
private messenger, Facebook, Viber, WhatsApp,
Line, Zoom and other similar applications)
depending on what is available for both teachers
Contact and Non-contact Hours
and students.
The expected number of hours will be 54

including the face to face or virtual sessions. The
face to face sessions shall include the
summative assessment tasks (exams) since this
course is crucial in the licensure examination for
Certified Public Accountant.
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Submission of assessment tasks shall be on the

2nd, 4th and 6th week of the summer class.
Moreover, specific dates of submission are
specified in the Course Schedules Section of this
manual. The assessment paper shall be attached
with cover page including the title of assessment
task (if the task is performance), the name of
the course coordinator, date of submission and
name of the student. The document shall be
submitted to the course coordinator thru LMS
(Schoology), email, FB messenger or thru any
means accessible to students. It is also expected
that you already paid your tuition and other fees
Assessment Task Submission
before the submission of the assessment task.
If the assessment task is done in real time

through the features of LMS accessible to
students, the schedule shall be arranged ahead
of time by the course coordinator.
Since this course is included in the licensure

examination for CPAs, you will be required to
take the Multiple Choice Question Exam inside
the school. This should be scheduled ahead of
time by your course coordinator. This is non-
negotiable for all licensure-based programs.
To ensure honesty and authenticity, all

assessment tasks are required to be submitted
thru Turnitin with a maximum similarity index of
30% allowed. This means that if your paper goes
beyond 30%, the students will either opt to redo
her/his paper or explain in writing addressed to
the course coordinator the reasons for similarity.
In addition, if the paper has reached more than
Turnitin Submission 30% similarity index, the student may be called
(if necessary) for a disciplinary action in accordance with the
University’s OPM on Intellectual and Academic
Honesty.
Please note that academic dishonesty such as

cheating and commissioning other students or
people to complete the task for you have severe
punishments (reprimand, warning, expulsion).
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The score for an assessment item submitted

after the designated time on the due date,
without an approved extension of time, will be
reduced by 5% of the possible maximum score
for that assessment item for each day or part day
Penalties for Late that the assessment item is late.
Assignments/Assessments
However, if the late submission of assessment
paper has a valid reason, a letter of explanation
should be submitted and approved by the course
coordinator. If necessary, you will also be
required to present/attach evidences.
Assessment tasks will be returned to you one (1)

week after the submission. This will be returned
by LMS, email, FB messenger or any other
communication platforms available for both
teacher and students.
Return of Assignments/
Assessments For some group assessment tasks, the course
coordinator will require some or few of the
students for online or virtual sessions to ask
clarificatory questions to validate the originality of
the assessment task submitted and to ensure
that all the group members are involved.
You should request in writing addressed to the

course coordinator his/her intention to resubmit
an assessment task. The resubmission is
Assignment Resubmission premised on the student’s failure to comply with
the similarity index and other standards or other
reasonable circumstances e.g. illness, accidents,
and financial constraints.
You should request in writing addressed to the

program head your intention to appeal or contest
the score given to an assessment task. The letter
should explicitly explain the reasons/points to
contest the grade. The program head shall
Re-marking of Assessment communicate with the students on the approval
Papers and Appeal or disapproval of the request.
If disapproved by the course coordinator, you

can elevate your case to the program head or the
dean with the original letter of request. The final
decision will come from the Dean of College.
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You shall be evaluated based on the following:
Assessment methods Weights

EXAMINATIONS 60%
A. Exam – Prelims & Midterm 30%
B. Final Exam 30%
CLASS PARTICIPATIONS 40%
Grading System C. Quizzes 10%
D. Assignments 5%
E. Research/Requirement 15%
F. Oral recitation 10%
Total 100%
Submission of the final grades shall follow the

usual University system and procedures.
Preferred Referencing Style Use the general practice of APA 6th edition.
The course coordinator shall create Group Chat

in FB messenger for the class. Each student
shall create a Schoology account. The course
coordinator will then provide a Schoology access
code to the students for them to enroll to have
access to the materials and resources of the
course. All communication formats: chat,
Student Communication
submission of assessment tasks, request, etc.
may be done thru any platforms available for the
convenience of teacher and students.
You can also meet the course coordinator in

person through the scheduled face to face
sessions to raise your issues and concerns.
Dr. Gina Fe G. Israel, EdD

Contact Details of the Dean Email: deansofficetagum@umindanao.edu.ph
Mobile: 09099942314
For Accountancy:
Mary Cris L. Luzada, CPA, MSA

Contact Details of the Program
Email: luzadacris@umindanao.edu.ph
Head
Mobile: 09228321794
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For Accounting Technology:
Maria Teresa A. Ozoa, CPA, MBA

Email: ozoamateresa@umindanao.edu.ph
Mobile: 09472657119
Students with special needs shall communicate

with the course coordinator about the nature of
his or her special needs. Depending on the
nature of the need, the course coordinator with
the approval of the program coordinator may
Student with Special Needs
provide alternative assessment tasks or
extension of the deadline of submission of
assessment tasks. However, the alternative
assessment tasks should still be in the service of
achieving the desired course learning outcomes.
Clarissa R. Donayre, MSLS

Chief Librarian
Library Contact Details
Email: lictagum@umindanao.edu.ph
Mobile: 0927-395-1639
Rochen D. Yntig, RGC

Head
Email: chenny.yntig@gmail.com
Number: 0932 7717 219
Mersun Faith A. Delco, RPm

Well Being Welfare Support
Psychometrician
Help Desk Contact Details
Email: mersunfaithdelco@gmail.com
Number: 0927 6086 037
Alfred Joshua M. Navarro

Facilitator
Email: is40fotb@gmail.com
Number: 0977 3416 064
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Course Information – see/download course syllabus posted in

Schoology or other available platforms
CC’s Voice: Hello dear students! Welcome to this course ACC 123: Cost
Accounting and Control. This course is the part of the board exam
subject MAS (Management Accounting Services). As you geared
towards the completion of the degree, this course will enlighten
you to the task of an accountant employed in manufacturing
business entities. This course will discuss topics anchored in
manufacturing concern businesses and detailing the major product
costing systems, specifically: job order costing system and product
costing system. So, prepare yourself for another fruitful learning
experience!
Course outcome: The Accountancy profession covers four sectors namely: public
practice, government, academe and the commerce and industry
(private sector). A CPA employed in the private usually holds a
staff position, who is responsible for providing relevant cost
information that is useful in making economic decisions. Thus, in
this course you will be immersed on the topics related to the
manufacturing concern businesses, Job Order Costing system,
Process costing system and other topics related to cost
accounting.
Let us begin!
Big Picture
Week 1-2: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to
a. Distinguish the characteristics of financial, managerial and cost

accounting;
b. Distinguish the differences of merchandising and manufacturing
operation of entities in the industry and differentiate their cost
accounting cycle.
c. Identify the uses of cost accounting data;
d. Distinguish the differences of Process costing system and Job order
costing system;
e. Distinguish the differences between Cost, Expenses and Losses;
f. Define and distinguish the different types of costs and expenditures
that are useful in planning, control and analytical processes; the cost
are not limited to the following:
f.1. Product Cost and Period Cost;
f.2. Prime Cost and Conversion Cost;
f.3. Direct Cost and Indirect Cost;
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f.4. Variable Cost, Fixed Cost and Mixed Cost;

f.5. Common Cost and Joint Cost;
f.6. Capital Expenditure and Revenue Expenditure; and
f.7. Controllable Cost and Non-controllable Cost.
g. Define the job order costing system and identify the firms that uses job
order costing system, differentiate the types of forms that are used in
the job order costing system and the system of cost accumulation for
materials and prepare of the job cost sheets.
Big Picture in Focus: ULOa. Distinguish the characteristics of

financial, managerial and cost accounting;
Metalanguage
For you to demonstrate ULOa, you will need operational understanding of the terms
enumerated below.
Management Accounting is the practice of identifying, measuring, analyzing,

interpreting, and communicating financial information to managers for the pursuit of an
organization's goals. It varies from financial accounting because the intended purpose
of managerial accounting is to assist users internal to the company in making well-
informed business decisions.
Financial Accounting is the field of accounting concerned with the summary, analysis
and reporting of financial transactions related to a business. This involves the
preparation of financial statements available for public
use. Stockholders, suppliers, banks, employees, government agencies, business
owners, and other stakeholders are examples of people interested in receiving such
information for decision making purposes.
Cost Accounting is a systematic set of procedures for recording and reporting

measurements of the cost of manufacturing goods and performing services in the
aggregate and in detail.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus, you
are expected to utilize other books, research articles and other resources that are
available in the university’s library e.g. ebrary, search.proquest.com etc., and even
online tutorial websites.
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Financial Accounting
Financial accounting is a branch of accounting that reporting financial information
primarily to the external parties, including investors (the suppliers of funds to the firm)
and creditors(debt provider to the entity). It is primarily concerned with the preparation
of financial statements that are useful for external users. The reports focusses on the
enterprise as a whole. The information is based on historical, qualitative, monetary and
verifiable information and is supported by documented evidence. Reports that are
provided in this branch are in the form of financial statements, tax returns and other
formal reports distributed to the various external users. This information may also be
used for financial analysis by management. This is also required for may corporation
firms as a requirements of the SEC (Securities and Exchange Commission) and BIR
(Bureau of Internal Revenue) for compliance with the country’s tax laws. Financial
accounting presents information with some degree of precision in reporting historical
information as at the same time it emphasizes verifiability and freedom from bias of
information that are relevant to the general user and some degree of timeliness in
reporting which is not critical in managerial accounting.
Management/Managerial Accounting
Management/Managerial accounting focusses on reporting information within the
organization rather than outside users. It addresses the individual or divisional concerns
rather than the enterprise as a whole. The information provided may be current or
forecasted, qualitative or quantitative, monetary or non-monetary and mostly all the data
are timely ad futuristic. Some of the costs are not recorded on the books of accounting
in the organization. Timing and relevance of information that has greater significance to
the internal users of information and decision maker within the organization. The
measurement of
Timeliness is most important quality of information that should be provided to the

internal users than other thus, management should get the information they need for
thier immediate decisions that cannot wait until tomorrow.
Management accountig is not distinct and separate from financial accounting as the
data from financial accounting are used in managerial accouting system.
Cost Accounting
Cost accounting is an expanded phase of general or financial accounting which informs
management promptly with the costs of rendering a particular service, buying and
selling of products and producing a product. It is the field of accounting that measures,
records and reports information about costs and it is also the essential to efficient
cooperation of business and industry.
Cost accounting provides information to both financial accounting and managerial

accounting as necessary information to finalize their reports. This is an intersection
between financial and managerial accounting. It provides product costs information to
external parties for decision making and also to internal parties for planning and
controlling.
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Table a.1 The summary of differences of financial, managerial and cost

accounting.
The Differences Between Financial Accounting, Cost Accounting, Management
Accounting.
BASIS FINANCIAL COST MANAGEMENT
ACCOUNTING ACCOUNTING ACCOUNTING
Ascertainment,
Record transactions & To assist the
allocation,
determine financial management in
OBJECT accumulation and
position and profit or decision-making and
accounting for
loss policy formulation.
costs
Concerned with Deals with
both past and projections of data
Concerned with
NATURE present records for the
historical data
(historical in future(futuristic in
nature) nature)
Certain principles
PRINCIPLE No set of principles
Governed by GAAP followed for
FOLLOWED are followed in it
recording costs
Uses both qualitative
Qualitative aspects are Only qualitative
DATA USED and quantitative
not recorded aspect is recorded
concepts
Let’s Check!
I. Questions:
1. What is financial accounting?
________________________________________________________
________________________________________________________
2. What is managerial accounting?
________________________________________________________
________________________________________________________
3. What is cost accounting?
________________________________________________________
________________________________________________________
4. What are the distinguishing the difference between the cost accounting,
financial accounting and managerial accounting?
________________________________________________________
________________________________________________________
II. True or False
1. Managerial accounting internal reports are prepared more frequently than are
classified financial statements.
2. Management accounting applies to all forms of business organization
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3. Financial accounting reports are general-purpose reports while managerial

accounting reports are usually special purpose reports.
4. Managerial accounting information generally pertains to the entity as a whole
and is highly aggregated.
5. Financial accounting report should be inconformity with the Philippine
Financial Reporting Standards (PFRS).
6. Cost accounting are branch of accounting that deals with the accumulation of
product costa and other costs.
7. Financial Accounting provides a historical perspective, whereas management
accounting emphasizes a current perspective.
8. Financial Accounting is primarily concern with profitability analysis.
9. Management accounting provides information that is generally available only
on a quarterly and annual basis.
10. Cost accounting procedures helps the management to gather data needed to
determine the product cost and generate a meaningful results.
III. Multiple choice
1. Which of the following person are most likely to use the management
accounting information is a(an),
a. Banker evaluating a credit application
b. Shareholder evaluating a stock investment
c. Government taxing authority
d. Assembly department supervisor
2. Which of the following is not an internal user?
a. Creditor c. Controller
b. Cost accountant d. Department Manager
3. Internal reports must be communicated
a. Daily b. Monthly c. Annually d. As needed
4. Which of the following persons generally use financial accounting information?
a. Regulatory agencies c. Production department supervisor
b. Managers d. Sales executives
5. Which of the following statements about cost accounting is NOT true?
a. It provides costs to internal parties
b. It is an intersection of financial accounting and financial accounting
c. It provides an information that is used for both financial and management
accounting
d. It is concerned with the historical information.
Let’s Analyze!
Marion Dela Cuestra is a manager of MDC Company and wondering if their company
are still ahead of its competitor. If you are Marion Dela Cuestra where you are going to
get the information for you to analyze your advantage from your competitors? Why?
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Q&A List
Do you have any question for clarification?
Questions/Issues Answers
1.
2.
3.
4.
5.
Keywords index
Cost Accounting Management Accounting
Financial Accounting
Self-Help: You can also refer to the sources below to help you
further understand the lesson.
You can also refer to the sources below to help you further understand the
lesson:
De Leon, N. D., De Leon, E. D. and De Leon, G. Jr. M. (2019). Cost accounting
and control. Manila: GIC Enterprise & Co., Inc.
Garrison, R.H., & Noreen, E.W. (2003). Managerial accounting (10th ed.). McGraw-
Hill Company, Inc.
Cabrera, E. B. (2014). Management accounting: concepts and application. Manila:
GIC Enterprise & Co., Inc.
Note:
The content of this manual is based on the textbook for ACC 123 titled “Cost Accounting
and Control” by De Leon, Norma D., De Leon, Ellery D. and De Leon, Guillermo Jr. M.
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Big Picture in Focus: ULOb. Distinguish the differences of merchandising

and manufacturing operation of entities in the industry and differentiate
their cost accounting cycle.
Metalanguage
For you to demonstrate ULOb, you will need operational understanding of the terms
enumerated below.
Merchandising concern business is one of the most common types of businesses we

interact with daily. It is a business that purchases finished products and resells them to
consumers.
Manufacturing concern business is any industry that makes products from raw
materials by the use of manual labor or machinery and that is usually carried out
systematically with a division of labor
Raw Material Inventory is the total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.
Work in Process Inventory is materials that have been partially completed through
the production process.
Finished Goods Inventory refers to the number of manufactured products

in stock that are available for customers to purchase.
Direct Materials are those materials and supplies that are consumed during the
manufacture of a product, and which are directly identified with that product.
Direct Labor is the production or services labor that is assigned to a specific product,
cost center, or work order.
Factory Overhead is the costs incurred during the manufacturing process, not
including the costs of direct labor and direct materials. It is normally aggregated and
allocated to units produced during the period.
Cost of Goods Sold is the cost of acquiring or manufacturing the products that a
company sells during a period, so the only costs included in the measure are those
that are directly tied to the production of the products, including the cost of labor,
materials, and manufacturing overhead.
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Essential Knowledge
Merchandising Business Operation

No need to produce products as they buy products and sell the same products to
the end user. Figure 1. Presents the steps of calculating cost of goods sold for
merchandising concern business operation. Figure 2. Presents the cost flow of
merchandising company. The company purchases products or merchandise for cash or
credit to be sold to customer either on cash or on credit also. The unsold inventory from
last period that is called Beginning Merchandise Inventory and the net purchase that
composed of purchases plus freight in less purchase returns and allowances and
purchase discount will be added together to get the cost of goods available for sale.
Then, deduct the unsold product this period that is called Merchandise Inventory,
Ending to get the cost of goods sold or the cost of the product sold this period.
Illustration 1
Jose Company purchase merchandise worth P/ 750,000 pesos and return P/ 50,000 of
it to the supplier and paid freight for the purchases P/ 2,750. The company avail the P/
25,000 worth of discount. The merchandise beginning and end, respectively are P/
75,000 and P/ 65,000.
Figure b.1 Computation of cost of goods sold for merchandising company.
Merchandise Inventory, Beginning P/ 75,000

Add: Net Purchases
Purchases P/ 750,000
Add:. Freight In 2,750 752,750
Total
Less: Purchase Returns & Allowance 50,000
Purchase Discounts 25,000 (75,000) 677,750
Cost of Goods Available for Sale 752,750
Less: Merchandise Inventory, Ending (65,000)
Cost of Goods Sold 687,750
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Figure b.2 Cost flow of merchandising concern business.
Manufacturing Concern Business
All types of business entities needed to have an information system that provide
necessary information. Manufacturing businesses
the information system that they should have is
designed to accumulate detailed costs data relative
to the production process. Thus, they need to have
a structured cost accounting system that will show
what are the cost necessary for the production,
where and how these costs are utilized by the
production process.
The production process and the merchandising

activities must be understand to appreciate the
importance of the efficient cost accounting system
as manufacturing and merchandising have
similar activities as to the following:
a. Buying of goods;
b. Storing of goods;
c. Selling of goods;
d. Must have efficient management;
e. Adequate sources of capital;
f. Employ many workers.
The distinctions of manufacturing and

merchandising are the following:
a. Manufacturers, must produce the
product they are going to sell to the
customers while merchandisers, buy
items in a marketable form to be resold
immediately to the customers;
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b. Manufacturing process convert purchase items to make products while in

merchandising no process like this.
Producing goods by the process of transforming raw materials with the use of labor and
other costs and expenses necessary to finish the product that are to be sold to the
costumers. The similarities and differences of merchandising and manufacturing are
presented above. The 3 main costs in manufacturing concern are the direct raw
materials, direct labor and factory overhead that will form part as the total manufacturing
costs. The manufacturing business will maintain 3 different types of inventory account.
First is the Raw Material inventory are used for raw materials that are used to account
unused raw materials. Second is Work in Process inventory that are used to account
those unfinished product that are still on process. Third is the Finished Goods inventory
is that same set up as Merchandise Inventory account that are used to account unsold
completed products that are readily available for sale and some company use other
type of inventor which is the Factory Supplies inventory that are used to account
overheads that are still not used in the production.
The costs of materials used, direct labor costs and factory overhead costs (that are
composed of indirect materials, indirect labor, utility costs, depreciation of factory
building and machineries and equipment, supplies and other factory costs) are
transferred and accumulated to the Work in Process Inventory account during the
accounting period. After the production is completed and the products are already
finished, all the manufacturing costs from Work in Process Inventory account will be
transferred to the Finished Goods Inventory account. The remaining cost in the Work in
Process inventory account will be the Work in Process Inventory, End and this will be
the Work in Process Inventory, beginning in the next accounting period. All the costs
that are transferred to finished goods will be accounted as Cost of Goods Sold if the
products are sold that are reported to the Statement of Comprehensive Income or the
Income Statement of the company and the costs of the unsold product will make up the
balance of Finished Goods Inventory, end that will form part as the costs of Finished
Goods Inventory, beginning for the next accounting period.
Figure b.3 Cost flow for Manufacturing Company
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Formula for getting the total Cost of Goods Sold for manufacturing company
Raw Materials Inventory, Beginning P xxxxx
Add: Net raw materials purchases:
Raw materials purchases P xxxxx
Add: Freight In xxxxx P xxxxx
Less: Purchase returns xxxxx
Purchase allowance xxxxx
Purchase discounts xxxxx (xxxxx) xxxxx
Raw Materials available for use xxxxx
Less: Raw Materials Inventory, Ending (xxxxx)
Direct Materials Used xxxxx
Direct Labor xxxxx
Factory Overhead xxxxx
Total Manufacturing Costs xxxxx
Add: Work In Process Inventory, Beginning xxxxx
Total Cost of Goods placed into process xxxxx
Less: Work In Process Inventory, Ending (xxxxx)
Total Cost of Goods Manufactured xxxxx
Add: Finished Goods Inventory, Beginning xxxxx
Total Cost of Goods Available for Sale xxxxx
Less: Finished Goods Inventory, Ending (xxxxx)
Total Cost of Goods of Goods Sold xxxxx
ILLUSTRATION
Joe Mariano Corporation has the following information for the preparation of statement of cost of
goods sold of the company.
Inventory Beg End
Raw Materials 100,000 125,000
Work-In Process 78,000 97,500
Finished Goods 124,500 102,750
Indirect Materials 25,750
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Indirect Labor 61,250

Direct Labor 1,756,350
Factory Supervision 96,750
Factory Building Depreciation 120,800
Factory Supplies 176,800
President’s Salary 350,000
Uncollectible Accounts 75,800
Factory Machinery and Equipment Maintenance 35,700
Taxes for Factory Building 27,780
Sales Commission 99,750
Factory Machinery and Equipment Depreciation 102,750
Sales Salaries 76,340
Factory Building Maintenance 55,000
Delivery Expenses 40,700
Raw Material Purchases 1,750,000
Purchase Returns and Allowances 80,000
Purchase Discounts 25,750
Freight In 12,500
Freight Out 23,756
Required: Prepare Statement of Cost of Goods Sold.

SOLUTION:
Raw Materials Inventory, Beginning P 100,000

Raw materials purchases P 1,750,000
Add: Freight In 12,500 P 1,762,500
Less: Purchase returns 80,000
Purchase allowance -
Purchase discounts 25,750 (105,750) 1,656,750
Raw Materials available for use 1,756,750
Less: Raw Materials Inventory, Ending (125,000)
Direct Materials Used 1,631,750
Factory Overhead:
Factory Supervision 96,750
Factory Building Depreciation 120,800
Factory Supplies 176,800
Factory Machinery and Equipment Maintenance 35,700
Taxes for Factory Building 27,780
Factory Machinery and Equipment Depreciation 102,750
Factory Building Maintenance 55,000 702,580
Total Manufacturing Costs 4,090,680
Add: Work In Process Inventory, Beginning 78,000
Total Cost of Goods placed into process 4,168,680
Less: Work In Process Inventory, Ending (97,500)
Total Cost of Goods Manufactured 4,071,180
Add: Finished Goods Inventory, Beginning 124,500
Total Cost of Goods Available for Sale 4,195,680
Less: Finished Goods Inventory, Ending (102,750)
Total Cost of Goods of Goods Sold 4,092,930
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The Cost Accounting Cycles with Journal Entry

Purchase of materials and supplies
Journal Entry: Materials xxxxx
Accounts Payable/Cash xxxxx
Return of materials and supplies to supplier

Journal Entry: Accounts Payable/Cash xxxxx
Materials xxxxx
Issuance of direct materials to production

Journal Entry: Work In Process xxxxx
Materials xxxxx
Issuance of indirect materials to production

Journal Entry: Factory Overhead Control xxxxx
Materials xxxxx
Return of direct materials from production to warehouse

Work In Process xxxxx
Return of indirect material from production to warehouse

Factory Overhead Control xxxxx
Setting up of payroll liability

Journal Entry: Payroll xxxxx
Withholding Taxes Payable xxxxx
SSS Premium Payable xxxxx
PhilHealth Contribution Payable xxxxx
Pag-Ibig Premium Payable xxxxx
Accrued Payroll xxxxx
Distribution of Payroll
Selling and Administrative Expenses Control xxxxx
Payroll xxxxx
Payment of Payroll
Journal Entry: Accrued Payroll xxxxx
Cash xxxxx
The two types of factory overhead are used:
Factory Overhead Control– used for actual factory overhead costs incurred by the
company.
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Factory Overhead Applied– used for factory overhead that are based on the
predetermined rate.
This terms are also used in the process;
Under Applied Factory Overhead– is the result if factory overhead control is greater
than the factory overhead applied.
Over Applied Factory Overhead– is the result if factory overhead control is lesser than
the factory overhead applied.
Occurrence of actual factory overhead.
Journal Entry: Factory Overhead Control xxxxx
Various Accounts** xxxxx
**Cash/Accounts Payable/Contra Asset accounts
Application of factory overhead to production
Factory Overhead Applied xxxxx
To close the two factory overhead accounts with under applied factory overhead
Journal Entry: Factory Overhead Applied xxxxx
Under Applied Factory Overhead xxxxx
To close the under applied factory overhead

Generally, (immaterial amount)
Journal Entry: Cost of Goods Sold xxxxx
Alternatively, (Material amount)

Journal Entry: Cost of Goods Sold xxxxx
Finished Goods Inventory xxxxx
Work In Process Inventory xxxxx
To close the two factory overhead accounts with over applied factory overhead
Journal Entry: Factory Overhead Applied xxxxx
Over Applied Factory Overhead xxxxx
To close the over applied factory overhead

Journal Entry: Over Applied Factory Overhead xxxxx
Cost of Goods Sold xxxxx

Journal Entry: Over Applied Factory Overhead xxxxx
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ILLUSTRATION
Gulmanchi Company has the following information in its financial statements and the
transactions for the year.
Gulmanchi Company
Statement of Financial Position
January 1, 2020
Assets Liabilities & Stockholder’s Equity

Cash P/ 180,000 Liabilities P/ 0
Building 950,000 Capital Stock 1,350,000
Machinery & Equioment 220,000 Total Liabilities &
Total Assets 1,350,000 Stockholder’s Equity 1,350,000
Transaction for the year are the following:

1. Purchase materials on account of P/ 250,000
2. Issuance of materials to production P/ 200,000 direct and 10,000 indirect.
3. Return 2,000 amount of materials to suppliers.
4. Total payroll of the company is 350,000, consisting 270,000 earned by factory
workers, 45,000 earned from factory supervisory, the remaining amount is selling
and administrative expense. SSS Premium 1,700, Pag-Ibig Premium 600,
PhilHealth Premium 450 and Withholding Taxes of 1,050.
5. Depreciation of the building 5%. The building is occupied 25% by office and the
rest are used by the factory.
6. Depreciation of machinery and equipment is 15% per year. This are used by the
production.
7. Accrue cost of utilities of 45,000 in which 30% are used by the office and the rest
is used in the factory.
8. Miscellaneous expense used by the factory for 25,000 was paid.
9. Application rate of factory overhead is 120% based on direct labor costs.
10. All of the processed products for the year is completed.
11. Payment of accounts.
12. Payment of accrued expenses.
13. The 85% of finished goods are sold on account to the customers at 40% based
on cost.
14. The 90% of the accounts was collected.
Requirements:
1. Journalize the transactions above
2. Prepare Statement of Comprehensive Income for the year
3. Prepare Statement of Financial Position
Answer for Requirement No. 1

1. Materials 250,000
Accounts Payable 250,000
Purchases on account
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2. Work In Process 200,000

Factory Overhead Control 10,000
Materials 210,000
Issuance of materials to production
3. Accounts Payables 2,000

Materials 2,000
Return of materials to suppliers
4. Payroll 350,000
SSS Premium Payable 1,700
Pag-Ibig Premium Payable 600
PhilHealth Premium Payable 450
Withholding Taxes Payable 1,050
Accrued Payroll 346,200
Accrual of payroll
Work In Process 270,000

Selling and Administrative Expense Control 35,000
Payroll 350,000
Distribution of payroll

Cash 346,200
Payment of payroll
5. Factory Overhead Control 33,250

Accu. Depre. – Building 47,500
Recognizing the building depreciation

Accu. Depre. – Machinery and Equip. 33,000
Recognizing the machinery and equip. depreciation

Accrued Expenses 45,000
Accruals of utilities
8. Factory Overhead control 25,000

Cash 25,000
Payment of factory miscellaneous expenses
9. Work In Process (270,000 * 120%) 324,000

Factory Overhead Applied 324,000
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Application of FOH
10. Finished Goods 794,000

Work In Process 794,000
Costs of completed products
Direct Materials 200,000

Direct Labor 270,000
Total Manufacturing Costs 794,000
11. Accounts Payable 248,000

Cash 248,000
Payment of accounts
12. Accrued Expenses 45,000

Cash 45,000
Payment of accrued expenses
13. Accounts Receivables 1,111,600

Sales 1,111,600
Sold products to customers
Finished Goods 794,000
Cost of product sold
14. Cash 1,000,440

Accounts Receivables 1,000,440
Collection from customers

Multiplied by: Gross Profit Rate 140%
Sales 1,111,600
Multiplied by: Collection Rate 90%
Collections 1,000,440
15. Factory Overhead Applied 324,000

Over Applied Factory Overhead 146,250
To close the FOH
Over Applied Factory Overhead 146,250

To close the over applied FOH

Depreciation Expense-Factory Building 33,250
Depreciation Expense-Factory Machinery and Equip. 33,000
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Factory Utilities Expense 31,500

Factory Miscellaneous Expense 25,000
Total 177,750
T-ACCOUNTS:
CASH ACCOUNTS RECEIVABLES
Beg 180,000 4. 346,200 13. 1,111,600 18. 1,000,440
14. 1,000,440 8. 25,000
11. 248,000
12. 45,000
1,180,440 664,200 1,111,600 1,000,440
516,240 111,160
BUILDING ACCU. DEPRE. - BUILDING

Beg. 950,000 5. 47,500
950,000 47,500
MACHINERY AND EQUIPMENT ACCU. DEPRE.-MACHINERY & EQUIP.
Beg. 220,000 6. 33,000
220,000 33,000
ACCOUNTS PAYABLE ACCRUED EXPENSES

3. 2,000 1. 250,000 13. 45,000 7. 45,000
11. 248,000
250,000 250,000 45,000 45,000
0 0
PAG-IBIG PREMIUM PAYABLE SSS PREMIUM PAYABLE

4. 600 4. 1,700
600 1,700
PHILHEALTH PREMIUM PAYABLE WITHHOLDING TAX PAYABLE

4. 450 4. 1,050
450 1,050
CAPITAL STOCK MATERIALS

Beg. 1,350,000 1. 250,000 2. 210,000
3. 2,000
250,000 212,000
1,350,000 38,000
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WORK IN PROCESS FINISHED GOODS

2. 200,000 10. 794,000 10. 794,000 13. 794,000
4. 270,000
9. 324,000
794,000 794,000 794,000 794,000
0 0
FACTORY OVERHEAD CONTROL FACTORY OVERHEAD APPLIED

2. 10,000 4. 177,750 15. 324,000 9. 324,000
4. 45,000
5. 33,250
6. 33,000
7. 31,500
8. 25,000
177,750 177,750 324,000 324,000
0 0
SELLING & ADMIN. EXP. CONTROL PAYROLL

4. 35,000 4. 350,000 4. 350,000
5. 14,250
7. 13,500
62,750 0
ACCRUED PAYROLL SALES

4. 346,200 4. 346,200 13. 1,111,600
0 1,111,600
COST OF GOODS SOLD OVER APPLIED FACTORY OVERHEAD

13. 794,000 15. 146,250 15. 146,250 15. 146,250
647,750 0

Sales 1,111,600
Less: Cost of Goods Sold - Actual
Raw Materials Inventory, Beginning P 0
Raw materials purchases P 250,000
Add: Freight In 0 P 250,000
Less: Purchase returns 2,000
Purchase allowance 0
Purchase discounts 0 (2,000) 248,000
Raw Materials available for use 248,000
Less: Raw Materials Inventory, Ending 38,000
Indirect Materials Used 10,000 (48,000)
Direct Materials Used 200,000
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Factory Overhead 324,000
Total Manufacturing Costs 794,000
Add: Work In Process Inventory, Beginning 0
Total Cost of Goods placed into process 794,000
Less: Work In Process Inventory, Ending ( 0)
Total Cost of Goods Manufactured 794,000
Add: Finished Goods Inventory, Beginning 0
Total Cost of Goods Available for Sale 794,000
Less: Finished Goods Inventory, Ending ( 0)
Total Cost of Goods of Goods Sold-Normal 794,000
Add/Less: Under/Over Applied Factory Overhead (146,250) 647,750
Gross Profit P/ 463,850
Less: Selling and Administrative Expenses*** 62,750
Net Profit 401,100
***Office Payroll 35,000
Depreciation Expense - Office Building 14,250
Office Utilities Expense 13,500
Total 62,750
Gulmanchi Company
December 31, 2020
Capital Stock Beginning 1,350,000

Add: Net Profit 401,100
Capital Stock, Ending 1,751,100

Gulmanchi Company
December 31, 2020
Assets Liabilities & Stockholder’s Equity

Cash P/ 516,240 Pag-Ibig Premium Payable P/ 600
Accounts Receivables 111,160 SSS Premium Payable 1,700
Inventory 38,000 PhilHealth Premium Payable 450
Building 950,000 Withholding Tax Payable 1,050
Accu. Dep.-Bldg (47,500) Total Liabilities 3,800
Machinery & Equipment 220,000 Capital Stock 1,751,100
Accu. Dep.-M & E (33,000) Total Liabilities and
Total Assets 1,754,900 Stockholder’s Equity 1,754,900
Let’s Check!
I. Questions:
1. What is merchandising concern business?
________________________________________________________
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________________________________________________________
________________________________________________________
2. What is manufacturing concern business?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is/are the common characteristics of manufacturing and merchandising?

________________________________________________________
________________________________________________________
________________________________________________________
4. What are the differences between manufacturing and merchandising?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The cost attached to the unsold items are presented in the Work-In Process
Inventory, End
2. Merchandising uses one inventory account only while manufacturing uses
four types of inventory accounts.
3. Cost for the partially completed at the end of the accounting period is
reported in the Work-In Process Inventory, End.
4. Direct labor, direct material, factory overhead, indirect labor and indirect
materials are the cost that comprises the total manufacturing cost.
5. Merchandising is buying materials and process it to be sold while
manufacturing is buying product and selling directly to the customers.
III. Multiple choice theories

1. All of these relates to the characteristics of merchandising and
manufacturing, EXCEPT
a. Merchandising uses only one inventory account while manufacturing
uses three inventory accounts.
b. Merchandising is used by SMEs while manufacturing is used by large
company.
c. Merchandising and manufacturing both compute cost of goods sold.
d. Merchandising is buying and selling while manufacturing is converting
raw materials into finished products.
2. Cost of goods manufactured will usually include
a. only costs incurred during the current period
b. only direct labor and direct materials costs
c. some costs incurred during the prior period as well as costs incurred
during the current period
d. some period costs as well as some product costs
3. Which of the following is correct about the computation of the cost of goods
manufactured?
a. beginning work in process inventory plus total manufacturing cost.
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b. finished goods beginning plus cost of goods placed in process

c. ending work in process inventory(WIP) plus total manufacturing cost.
d. finished goods beginning less cost of goods placed in process
4. Cost of goods sold is higher than cost of goods manufactured
a. If Finished Goods(FG) beginning is higher than finished goods ending.
b. If FG beginning is lower than finished goods ending.
c. If the FG ending is equal to the cost of goods available for sale
d. If (WIP) inventory beginning is higher than (WIP) inventory, ending.
5. Which of the following should NOT be included as manufacturing overhead in
the manufacture of a wooden chair?
a. Glue on the chair
b. The amount paid to the individual who stains the chair
c. The workman’s compensation insurance of the supervisor who
oversees production.
d. The factory utilities of the department in which production takes place.
IV. Multiple choice problems

1. Maria Company has yearend manufacturing costs were as follows: Direct
materials and direct labor of 500,000, Depreciation of manufacturing
equipment of 70,000, Depreciation of factory building of 40,000 and Janitor’s
wages for cleaning factory premises for 15,000. How much of these are the
inventoriable costs?
a. 625,000 b. 610,000 c. 585,000 d. 500,000
2. Some selected sales and cost data for Joja Manufacturing Company are
Direct material used of 150,000, Direct labor of 250,000, Factory overhead of
125,000 and Selling and administrative expenses of 200,000. What is the
amount of the total product cost?
a. 400,000 b. 375,000 c. 200,000 d. 525,000
3. The following information is from Matatag Company for the month of

03/2020:
03/1/20 03/31/20
Materials P40,000 P50,000
Work in Process 25,000 35,000
Finished Goods 60,000 70,000
Direct labor cost 120,000
Factory overhead applied 108,000
Cost of goods sold 378,000
The cost of goods placed in process during March 2020 was:
a. 388,000 b. 398,000 c. 423,000 d. 448,000
4. During 2020, there was no change in the beginning or ending balance in the
Materials inventory account for the DL Co. However, the WP inventory
account increased by P15,000, and the FG inventory account decreased by
P10,000. If purchases of raw materials were P100,000 for the year, direct
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labor cost was P150,000, and manufacturing overhead cost was P200,000,
the cost of goods sold for the year would be:
a. P435,000 b. P445,000 c. P465,000 d. P475,000
5. The factory ledger of Pearl Corporation contains the following cost data for
the year ended December 31, 2020:
PARTICULARS 1/1/2020 12/31/2020

Raw materials Inventory 150,000 170,000
Work in process Inventory 160,000 60,000
Finished goods, Inventory 180,000 220,000
Freight In 2,500
Purchase Returns and Allowances 1,000
Purchase Discounts 900
Total manufacturing costs charged to production
during the year (including raw materials, direct labor
1,372,000
and factory overhead applied at the rate of 50% of
480,000 direct labor cost)
What is the cost of raw materials purchased?
a. 631,400 b. 651,400 c. 671,400 d. 802,000
Let’s Analyze!
1. Last month, Mare company placed P60,000 of materials into production. The
Printing Department used 8,000 labor hours at P5.60 per hour and the Binding
Department used 4,600 hours at P6.00 per hour. Factory overhead is applied at
a rate of P6.00 per labor hour in the Printing Department and P8.00 per labor
hour in the Binding Department. Mare’s inventory accounts show the following
balances:
Beginning Ending
Finished goods P22,000 P17,000
Work in process 15,000 17,600
Materials 20,000 18,000
What is the total cost of goods sold?
2. Melchora Incosar Corporation provides the following transactions for the month of
May.
A. Purchase materials for cash, 350,000.
B. The production department incur a 157,000 cost for the various expenses.
C. The payroll is 500,000 accrued and paid, where, 10% is indirect labor, 7% of this
is Selling expenses and 3% of this is Administrative expenses. The payroll
deductions are the following; Withholding Taxes at 11,650, SSS Premium,
14,500, HDMF Premium, 2,300 and PHIC Premium, 5,750
D. Material used in the production, 325,000, 10% is indirect materials.
E. Employer share in payroll deductions: where 80% is factory overhead, 10% is
selling expense and the remaining 10% is administrative expenses. The SSS
Premium is 29,000, HDMF Premium is 2,300 and PHIC Premium is 5,750.
F. Production department paid 254,000 worth of factory expenses.
G. Factory overhead applied to the production at 125% of the direct labor cost.
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H. The goods completed is 1,200,000 and sold on account at 150% based on costs.
I. Collected 80% of the accounts.
Required:
1. Journalized the following transactions and prepare T-Accounts.
2. Prepare Statement of Comprehensive Income for the year, Statement of
Changes in Equity and Statement of Financial Position.
In a Nutshell
PROBLEM 1:
Princess Precious Jewel Company had the following information on December 31, 2020.
Merchandise Inventory, Beginning 1,100,000.00
Purchases 5,600,000.00
Sales 8,750,000.00
Sales Salaries 600,000.00
Purchase Discounts 45,000.00
Store Supplies 150,000.00
Office Salaries 950,000.00
Interest Revenue 20,000.00
Retained Earnings, Beginning 550,000.00
Freight In 145,000.00
Sales Returns and Allowances 150,000.00
Income Tax Expense 280,000.00
Loss on Sale of Trading Securities 50,000.00
Doubtful Accounts 30,000.00
Depreciation – Store Equipment 25,000.00
Dividend Revenue 50,000.00
Depreciation – Delivery Truck 60,000.00
Depreciation – Office 35,000.00
Gain on Sale of Equipment 10,000.00
Dividends Paid 450,000.00
Loss from Inventory writedown 150,000.00
Contribution (70% factory worker) 125,000.00
Delivery Expense 425,000.00
Merchandise Inventory, Ending 850,000.00
Required: Prepare Income Statement.
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PROBLEM 2:
Kim Brilliant Company provides the following information for 2020:
Increase in Raw Materials Inventory 280,000.00
Decrease in Goods in Process Inventory 170,000.00
Increase in Finished Goods Inventory 300,000.00
Decrease in Factory supplies Inventory 95,000.00
Taxes and depreciation of factory building 150,000.00
Raw Material Purchases 3,500,000.00
Direct Labor 1,800,000.00
Indirect Labor 450,000.00
Supervisory 235,000.00
Indirect Materials 260,000.00
Repair and Maintenance-Machinery 145,000.00
Utilities (75% for Factory) 300,000.00
Purchase Returns and Allowances 95,000.00
Freight Out 75,000.00
Sales commissions 80,000.00
Rent Factory Building 250,000.00
Required: Prepare Statement of Cost of Goods Sold.
Q&A List
1.
2.
3.
4.
5.
Keywords index
Merchandising Raw Materials Inventory
Manufacturing Work in Process Inventory
Direct Materials Finished Goods Inventory
Direct Labor Merchandise Inventory
Factory Overhead Cost of Goods Sold
Cost of Goods Available for Manufacturing Costs
sale
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lesson:
Hill Company, Inc.
Note:
Big Picture in Focus: ULOc. Identify the uses of cost accounting data;
Metalanguage
For you to demonstrate ULOc, you will need operational understanding of the terms
enumerated below.
Product Cost refers to the costs incurred to create a product and these costs include
direct labor, direct materials, consumable production supplies, and factory overhead.
Planning is the process of thinking about the activities required to achieve a desired
goal. It is the first and foremost activity to achieve desired results. It involves the
creation and maintenance of a plan.
Controlling is to exercise restraining or directing influence over or to regulate
Essential Knowledge
32
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The Uses of Cost Accounting Data

Product cost is important for managing the company’s production costs thus
management needs the information that is provided by cost accounting to help the
manager to gather information for planning and controlling the company’s operation.
The cost accounting provides information that will determine the product cost and
generate properly costed product and meaningful financial statement and other reports
to management.
The information from cost accounting will be used for analysis of the trend of the
manufacturing costs incurred in the production process for management purposes. The
cost determination will help the company to make a variety of important marketing
decision.
1. Determining the selling price of a product. The product cost information is

necessary for management to come up with a reasonable product selling price that
will cover the total cost and expenditures that the company incurred in
manufacturing, storing, selling of product and rendering services to customers.
2. Meeting competition. The reasonable price must be determine by the managers to

meet the price acceptable by the customers means that the price is lower than other
companies that produces the same products. This would be achieve only if the
detailed information about the product cost is appropriately determine and provided
by the company to maintain the cost at a lowest as possible so that the price will
also reduce compare to other company.
3. Bidding on contracts. To be rewarded a manufacturing contract by the

government, private firms submits contract to bid order. The contract price must be
the lowest as possible from other bids so that you will be the one to get the contract
but to come up with the contract price the unit costs of the particular products
relating to the manufacturing contracts. The bid price must cover all the necessary
costs and expenditure to be incurred by the company and at the same time the
company will realized a reasonable profit from the contract.
4. Analyzing profitability. The information of the unit product cost are used by the
management to determine the amount of profit they earned from the products and if
the profit can be maximized by eliminating some unnecessary cost incurred by the
company and concentrating their efforts in creating a highest possible profit for the
company.
Costs are in evitable in a company thus this are said to be used by management
purposes to evaluate the managers for their performance, to evaluate also the
company’s personnel efficiency or sued for decision making purposes. This are the
uses of costs internally but externally to evaluate the top management performance in
the result of the stewardship challenge given to them and decide about the organization.
Planning and Control
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This are main purpose of cost accounting to the management. Planning is the process
of establishing objectives and determining the strategies to achieve them. This will
provide good management and coordinate all the departments in the operation of the
firm. This can be done by the management with the help of the cost accounting
information by providing historical costa that are basis for projecting the data in the
planning process. The cost accounting information can be also analyze to consider the
relationship among costs and use as aid in estimating cost in the future and create a
decision that will give advantage to the company’s operation by some changes that can
be implemented for the success of the organization such as change in marketing
strategies, obtaining additional capital and acquisition of new and additional facilities.
Planning are divided in 3 components

1. Strategic planning – concerned in creating long-range goals and objective for the
organization as a whole.
2. Tactical planning – concerned in a shorter range plans, this are done to achieved
the strategic goals and objectives of the firm.
3. Operational planning – this are plans for day-to-day operation of the business in
achieving the tactical plans thus, emphasizing the coordination of the major factors
of production (materials, labor and overhead).
Controlling is the process of monitoring and evaluating the company’s operation and
determining whether the set of objectives based on the plans are achieve or not.
Let’s Check!
I. Questions:
1. What is product costs?

________________________________________________________
________________________________________________________
________________________________________________________
2. What are the uses of cost accounting data?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is planning?
________________________________________________________
________________________________________________________
________________________________________________________
4. What is controlling?
________________________________________________________
________________________________________________________
________________________________________________________
5. What are the 3 components of planning and explain each component?
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________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. Controlling is the process of determining whether plans are being met.
2. Control includes deciding what feedback to provide that will help with future
decision making.
3. Tactical planning is concerned with the day-to-day operation of the firm.
4. Analyzing profitability is one of the uses of cost accounting data.
5. Cost accounting information is needed by management in directing and
planning.

1. Which of the following is not a management function?
a. Planning b. Constraining c. Motivating d. Directing
2. Jose Joanne Reyes is a manager JJMC Corporation, she is establishing
objectives and goals by performing what function?
a. Constraining b. Planning c. Motivating d. Directing
3. Which of the following is not a practical use of unit cost?
a. Meeting competition c. Analyzing profitability
b. SWOT analysis d. Bidding on contracts
4. Which of the following is correct?

a. Planning is the process of monitoring the company’s operation
b. Controlling is the coordination of all the operations of the firm.
c. Tactical planning is the plan to achieve the operational plan.
d. Controlling and Planning are the things that a management can do
from the information presented in the cost accounting reports.
5. Which of the following helps the management in gathering the data needed
to determine the product cost?
a. Accounting c. Management Accounting
b. Cost Accounting d. Financial Accounting
Q&A List
1.
2.
3.
4.
5.
Keywords index
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Product Cost Controlling

Selling Price Planning
lesson:
Hill Company, Inc.
Note:
Big Picture in Focus: ULOd. Distinguish the differences of Process

costing system and Job order costing system;
Metalanguage
For you to demonstrate ULOd, you will need operational understanding of the terms
enumerated below.
Job Order Costing System a system for allocating costs to groups of unique
products.
Process Costing System a system applicable to a continuous process of production

of the same and similar goods.
Essential Knowledge
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Job Order Costing System

It is one of the traditional approaches of product cost accounting system for those
company that make one-of-a-kind or special-order product. In this system, direct
material, direct labor and factory overhead are assigned to specific jobs orders or
batches of production. This system measures cost for each job, rather than for set time
periods. The company that uses this system are company that make ships, airplanes,
large machines and special orders. This are also used in service industry firms such as
in public accounting firms that are cost assigned to the audit engagements, the
consulting and architectural firms that assigned cost to contracts, while for universities it
may assign cost to every research projects. The unit cost are computed by dividing the
total manufacturing cost per job to the number good units produced for that order. It
uses one Work in Process Inventory Control account in the general ledger and
supported by job order cost cards or sheets for each job in process at any point of time.
Process Costing System

It is the other traditional approaches of product cost accounting system for those
company that make a large number of similar products or maintain a continuous
production. In this system the manufacturing costs are group per department or per
work center. It emphasizes a time period rather than the time taken to complete an
order. This uses several Work in Process(WIP) account as this system provides one
WIP account each work center or department or process. The cost are determined by
dividing total manufacturing cost assigned to each department or work center during the
period to the equivalent unit of production. If production process is consists of four
department process then the cost of the four department will be added together to
determine the costs of the product. This system is used by the company that produces
paints, gas and oils, automobiles, bricks, or soft drinks.
Table d.1. Summary of characteristics of job order costing system and job order
costing system.
Basis of Job Order Costing System Process Costing System

distinction
1. Nature of Each job is manufactured Production is continuous flow,
Production against specific requirement without any reference to
specific order or job.
2. Cost unit Each job is taken as a cost unit Each unit is taken as a cost
unit
3. Cost Cost are collected and Cost are allocated for each
accumulation accumulated against each job process
4. Cost Costs of a job is calculated Cost are calculated at the end
ascertainment when job is completed of the accounting period
5. Work In WIP may or may not exist At the end of accounting period
Process (WIP) WIP will always exists.
6. Types of Unique jobs are worked on Homogeneous product units
product and during a time period. pass through a similar process.
process.
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7. Unit cost Total cost on the cost sheet Individual department costs
determination divided by the number of units divided by equivalent unit
in the job. production
Hybrid Costing
It is the combination of job order costing system and process costing system. When the
ideas and characteristics are blended from the two traditional cost accounting system.
The relationships are presented below to understand the concept of this costing system.
Job Order Hybrid Process

Product Product Product
Costing Costing Costing
System System System
Operation Costing
It is a hybrid product costing system that are used in a repetitive manufacturing where
finished product have common as well as distinguishing characteristics. The
manufacture of clothing this can be assembled in one operation but these can be move
to other operation and have a deluxe lining added.
In the general rule, job order product costing system is more costly than process costing
system. Job order costing system is more detailed in record keeping than process
costing system. The managers should compare the additional benefits that will be
derive from knowing the actual cost of each unit. Thus, if the record keeping costs is
equal from job order costing and process costing then it is better to use job order
costing system but in order have a better decision then they need to get all the data
needed to consider the process costing system.
Let’s Check!
I. Questions:
1. What is process product costing system?

________________________________________________________
________________________________________________________
2. What is job order product costing system?

________________________________________________________
________________________________________________________
3. What is hybrid product costing system?

________________________________________________________
________________________________________________________
4. What is operation product costing system?

________________________________________________________
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________________________________________________________
5. What is/are differences between job order costing system and process costing
system?
________________________________________________________
________________________________________________________
II. True or False
1. Process costing is used by companies making one-of-a-kind products.

2. Job order costing system for allocating costs to group of unique product and
is applicable to the production of customer specified products such as the
manufacture of special machine.
3. Operation costing is a hybrid costing system have common as well as
distinguishing characteristics.
4. Job order costing system accumulates costs by individual jobs.
5. The unit costs are determined by dividing total manufacturing costs to the
total number of units produce in each process in the job order costing
system.
1. What is the best cost accumulation procedure to use when many batches,
each differing as to product specification, are produced?
a. Job order costing system c. Process costing system
b. Hybrid costing system d. Standard costing
2. Play Labs develops 35mm film using a four-step process that moves
progressively through four departments. The company specializes in
overnight service and has the largest drug store chain as its primary
customer. Currently, direct labor, direct materials and overhead are
accumulated by department. The cost accumulation system that best
describes the system Play Labs is using is
a. Operation costing c. Hybrid costing system
b. Job-order costing system d. Process costing system
3. Which one of the following alternatives correctly classifies the business
application to the appropriate costing system?
Job Order Costing System Process Costing System
a. Wallpaper manufacturer Oil refinery
b. Aircraft assembly Public accounting firm
c. Paint manufacturer Retail banking
d. Print shop Beverage drink manufacturer
4. Which of the following production operations would be most likely to employ
a job order system of cost accounting?
a. Toy Manufacturing c. Shipbuilding
b. Crude Oil Refining d. Candy Manufacturing
5. Which of the following products would most likely be accounted for with a
process costing system?
a. A public accounting firm c. Airplane manufacture
b. A retailer d. Gasoline refinery
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Q&A List
1.
2.
3.
4.
5.
Keywords index
Process Costing Job Cost Sheets
Job Order Costing Work In Process
lesson:
Hill Company, Inc.
Note:
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Big Picture in Focus: ULOe. Distinguish the differences between Cost,

Expenses and Losses;
Metalanguage
For you to demonstrate ULOe, you will need operational understanding of the terms
enumerated below.
Cost is the value of money that has been used up to produce something or deliver a
service.
Expenses is the cost of operations that a company incurs to generate revenue.
Losses is the fact of no longer having something or having less of it than before.
Essential Knowledge
Cost
This is associated to all kind and all types of business organization. Generally, the cost
incurred are categorized or classified by the organization dependent to its type of
organization involved.
It is the equivalent(cash equivalent) sacrificed for goods and services that are expected
to bring benefits to the organization. This will produce future benefits that are usually
means revenue.
Expenses
This is the expired costs that are deducted from the revenue in the income statement to
get the profit of the company as the cost are used up in producing or selling products
and rendering of service.
Losses
This is cost that are not used in the production or selling products and rendering of
services but they expire without producing any benefit.
Figure e.1 The relationship between Costs, Expenses and Losses
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Let’s Check!
I. Questions:
1. What is cost?
________________________________________________________
________________________________________________________
________________________________________________________
2. What is expense?
________________________________________________________
________________________________________________________
________________________________________________________
3. What is loss?
________________________________________________________
________________________________________________________
________________________________________________________
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4. What is/are differences between cost, expense and loss? And how they
relates to each other?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. Costs are incurred for future benefits.
2. Expenses are the cost that are expired.
3. Loss is the cost that will still be used.
4. Expenses are all cost but not all cost are expenses.
5. Losses and expenses are cost that are still beneficial to the company.
Q&A List
1.
2.
3.
4.
5.
Keywords index
Cost Losses
Expenses
lesson:
Hill Company, Inc.
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Note:
Big Picture in Focus: ULOf. Define and distinguish the different types of
costs and expenditures that are useful in planning, control and analytical
processes; the cost are not limited to the following:
f.1. Product Cost and Period Cost
f.2. Prime Cost and Conversion Cost;
f.3. Direct Cost and Indirect Cost;
f.4. Variable Cost, Fixed Cost and Mixed Cost;
f.5. Common Cost and Joint Cost;
f.6. Capital Expenditure and Revenue Expenditure; and
f.7. Controllable costs and Non-controllable Cost.
Metalanguage
For you to demonstrate ULOf, you will need operational understanding of the terms
enumerated below.
Product Costs is the cost from the supplier plus all costs necessary to get the item
into inventory and ready for sale.
Period Costs is the cost that are nescessarily be reported to the income statement as
deduction to the revenue.
Prime Cost is the direct cost of a commodity in terms of the materials and labor
involved in its production, excluding fixed costs
Conversion Cost is a term used in cost accounting that represents the combination
of direct labor costs and manufacturing overhead costs.
Direct Cost is a price that can be directly tied to the production of specific goods or
services.
Indirect Cost is cost that are not directly accountable to a cost object (such as a
particular project, facility, function or product).
Variable Cost a cost that varies with the level of output.
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Fixed Cost is a cost that does not change with an increase or decrease in the amount
of goods or services.
Mixed Cost is a cost that contains both a fixed cost component and a
variable cost component.
Common Cost is a cost that is not attributable to a specific cost object, such as a
product or process.
Joint Cost is a cost incurred in a joint process. Joint costs may include direct material,
direct labor, and overhead costs incurred during a joint production process.
Capital Expenditure are funds used by a company to acquire, upgrade, and maintain
physical assets such as property, buildings, an industrial plant, technology, or
equipment.
Revenue Expenditure is a cost that is charged to expense as soon as the cost is
incurred.
Standard cost is an estimated or predetermined cost of performing an operation or

producing a good or service, under normal conditions.
Opportunity costs is the benefit that is missed or given up when an investor, individual
or business chooses one alternative over another.
Differential costs is the difference between the cost of two alternative decisions, or of a
change in output levels.
Relevant costs is a managerial accounting term that describes avoidable costs that are
incurred only when making specific business decisions.
Out-of-pocket costs is the direct payment of money that may or may not be later
reimbursed from a third-party source.
Sunk costs is a cost that has already been incurred and cannot be recovered.
Controllable costs re those costs that can be altered in the short term. More
specifically, a cost is considered to be controllable if the decision to incur it resides with
one person.
Non-controllable costs is an expense that is not within the sphere of control of a

manager.
Essential Knowledge
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PRODUCT COST AND PERIOD COST
Product Cost
This is consist of the 3 major components namely: Direct Material, Direct Labor and
Factory Overhead. This are cost nescessary to produce a finish product.
Direct Materials are basic inggredients that are transformed to a finished product
aligned with the use of direct labor anf factory overhead. This are materials that are
directly, conveniently and economically traceable to the product example: flour is for
bread, steel sheet for automobiles, wood for tables and chairs and others
Directly traceable means that materials can be seen immediately to the product.
Conveniently tarceable means that the materials can be recognized without undue cost.
Economically treaceable means that the cost of the materials can be measureable
immediately without undue effort and cost.
If the material cost are not economically, directly and conveniently traceable they are
recorded as part of the factory overhead in the form of indirect materials. The example
of this cost are nails and paints in the furnitures, rivets in airplanes and bolts in
automobiles.
Direct Labor are amount of peso paid as wages to the people who works directly to the
product. This direct labor costs that are directly relates to the product of the company
includes the amount paid to machine operators, maintenance workers and other
workers directly involved in molding the products, while those amount paid to the people
not directly shaping the products are part of the indirect labor costs reported to the
factory overhead. This cost includes wages and salaries given to supervisors, machine
helpers and other support personnel. Payroll taxes, group insurance, sick pay, vacation
and holiday pay and other fringe benefits are usually included in the factory overhead
even it is part of the direct labor cost.
Factory Overhead the element that are considered as the indirect cost of all the
product cost. All cost that are not classified as direct material and direct labor costs are
recognized in this section. This are cost that are not practically, economically and
conveniently traced to the product. This is also called as manufacturing overhead,
factory burden and indirect manufacturing costs.
Indirect materials and supplies: nails, rivets, lubricants and small tools
Indirect labor costs: wages of lift-truck driver, maintenance and inspecton labor,
engineering labor, machine helpers and supervisors.
Other indirect factory costs: building, machinery and tool maintenance, propery taxes,
property insurance, pension costs, factory rent and utility.
Period Costs
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This are cost that are reported as expense in the period it is incurred. This costs are
group into marketing or selling expenses and administrative or general expense.
Marketing or selling expense is the costs that are inccurred in connectionwith

securing the customer orders until the delivery the product or services to the hands of
the customers. This cost are referred to as order-getting and order-filling costs. Example
of this costs are advertising, shipping, sales travel, sales commission, sales salaries,
and expenses relates to the finished goods warehouse.
Administrative or general expenses is the costs that are spent to all executive,
organizational and clerical expenses that are not included in production and marketing.
This expenses are executive compensation, general accounting, general administration
and all expenses that are incurred by the company in the administrative and general as
a whole in the organization.
PRIME COSTS AND CONVERSION COSTS

Prime costs are costs that are direct cost to the product as this is the combination of
the direct material cost and direct labor costs.
Conversion costs are the costs combined from the direct labor and factory overhead
that are use to transform the raw materials to finished products.
DIRECT COSTS AND INDIRECT COSTS

Direct costs are costs that are immediately traceable to the product if it is product costs
and costs that are charged to the particular manufacturing department that incurred the
costs that are conveniently identified with the departments that benefited from said
costs are called direct departmental charges if the cost is the cost from the department..
Indirect costs are costs that are not conveniently and economically traceable to the
product and if indirect costs that is charge to other departments that are later transferred
to other department are called indirect departmental charges.
VARIABLE COSTS, FIXED COSTS AND MIXED COSTS
Variable costs are costs that will vary directly to the change in total in relation to the
volume of production. In essence, the total costs will vary as the volume changes but
the cost per unit will not change even if there are changes in volume.
Figure f.1. Plotted graph for variable costs.
Illustration 1
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The labor cost of the company is P/ 4 pesos per volume produce

Volume Labor cost Cost per Unit(volume)
May 8,000 32,000 4
June 9,500 38,000 4
July 7,800 31,200 4
August 6,500 26,000 4
September 9,900 39,600 4
October 6,700 26,800 4
November 8,800 35,200 4
Therefore, the labor cost per unit will not change but the total costs will increase if the
volume will increase but if the volume will decrease then the total costs will also
decrease.
Fixed costs are costs that will remain constant in total even if there are changes in
volume of production but as to per unit it will vary inversely to the change in volume.
Examples are salaries of production executives, depreciation of the equipment and

building using straight-line basis of depreciation rental payments and insurance.
This costs are categorized into committed fixed costs and managed fixed costs.
Committed fixed costs are costs that are relatively committed on the management as
a result of past decision in a long-term basis. Example; depreciation.
Managed fixed costs are costs that are incurred in a short term basis and can be
easily modified and changed in respond to management objectives. Example;
advertising, research and development and training of employees.
Figure f.2
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Illustration 2
The rental cost of the company is P/ 100,000 pesos yearly.
Volume Rental cost Cost per Unit(volume)
May 8,000 100,000 12.5
June 9,090 100,000 11.0
July 8,333 100,000 12.0
August 8,695 100,000 11.5
September 7,692 100,000 13.0
October 6,400 100,000 15.625
November 7,142 100,000 14.00
Therefore, the total cost will not change as volume change as even if no produce the
cost will still be incurred by the company but the cost per unit is changing inversely as
the volume increase the cost per unit decreases and the cost per unit will increase if the
volume will decrease.
Mixed Costs are costs that has both the characteristics of fixed and variable cost or this
are cost that are partly fixed and partly variable. This cost has two types; semi-variable
costs and step costs.
Semi-variable costs are costs that definitely has fixed portion of the minimum fee
required and the variable portion is charge of using the service. Examples; utilities, cost
of cellphone or telephone plan. In the figure f.3 the line where it start is the fixed portion
and as the volume increase the cost will increase accordingly and that is the variable
portion of the costs.
Figure f.3 Semi-variable cost graphical illustration.
Illustration 3
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The company renting a building for P/ 250,000 and in addition the company also will pay
2% of the total sales of the company per year. The company earned a P/ 2,500,000
total sales for the current year.
Fixed rent 250,000

Variable rent (P/ 2,500,000*2%) 50,000
Total rent expense 300,000
Step Costs are costs changes abruptly in a various activity levels. This are similar to
fixed cost in a very small relevant range. In other words the fixed costs will change in a
various level of production of the company as presented in the figure f.4.
Figure f.4 The graphical illustration of the step costs.
Separating the Fixed cost portion and the Variable cost portion in the mixed costs
The problem of the manager is to ascertain as to how much is the fixed portion of the
mixed costs thus, separating the variable and fixed in a mixed cost is necessary. Then,
the manager will now have to use either of the three (3) methods of separating fixed and
variable costs to analyze and evaluate the cost incurred by the company.
This course will only discuss two of the methods namely the High-Low Method and the
Least Square Method, while the scatter graph method will be discuss in other
accounting related subject.
High-Low Method is the method of separating fixed and variable components of the
mixed cost by getting the highest volume and their corresponding cost and the lowest
volume and also their corresponding cost. Then follow the formula below
Cost of the Highest Volume minus(-) Cost of the Lowest Volume
Variable Costs/unit = ----------------------------------------------------------------------------------------
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Highest Volume minus(–) Lowest Volume

or
CHV – CLV
VCU = ------------------
HV - LV
Fixed Cost = Cost of the highest volume – (Highest volume * Variable cost per unit)
or
FC = CHV – (HV * VCU)
or
Fixed Cost = Cost of the lowest volume – (Lowest volume * Variable cost per unit)
or
FC = CLV – (LV * VCU)
Total costs = Fixed cost + Variable costs or TC = FC + VC
Whereas;
Variable costs = volume produced * Variable cost per unit or V * VCU
Legends:
TC – Total Costs VC – Variable Costs
FC – Fixed Costs VCU – Variable Cost per Unit
FCU – Fixed Cost per Unit TCU – Total Cost per Unit
V – Volume LV – Lowest Volume
HV – Highest Volume CLV – Costs of the Lowest Volume
CHV – Costs of the Highest Volume
Illustration 4
Magpakailanman Mo Kaya Company has the following information in the operation of

the company’s processing facilities at various levels of activity:
Month Units Processed Total Costs

January 8,000 14,000
February 4,500 10,000
March 7,000 12,500
April 9,000 15,500
May 3,750 10,000
June 6,000 12,500
July 3,000 8,500
August 5,000 11,500
Required: Using High-Low Method
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1. Compute:
a. the variable cost per unit
b. the total fixed costs
2. Compute for the total costs if the production is 7,800 units will be produced
Solution:
1.A
CHV – CLV 15,500 – 8,500
VCU = ------------------------- VCU = ------------------------
HV – LV 9,000 – 3,000
7,000
VCU = ---------- VCU = 1.1666…
6,000
1.B
FC = 15,500 – (9,000 * 1.1666…) FC = 8,500 – (3,000 * 1.1666…)
FC = 15,500 – 10,500 FC = 8,500 – 3,500
FC = 5,000 FC = 5,000
2.
TC = FC + VC
TC = FC + (V * VCU)
TC = 5,000 + (7,800 * 1.1666…)
TC = 5,000 + 9,100
TC = 14,100
Least Square Method
The formulas that are to be use in this solution are the linear equation formula.
Equation 1: Y = a + bx
Equation 2: ∑y = na + b∑x
Equation 3: ∑xy = ∑xa + b∑x2
Where:
Y = Total costs
n = number of given data
a = Fixed costs
b = Variable costs per unit
x = Level of activity
y = costs per level of activity
Illustration 5
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Magpakailanman Mo Kaya Company has the following information in the operation of

the company’s processing facilities at various levels of activity:
Month Units Processed Total Costs
January 8,000 14,000
February 4,500 10,000
March 7,000 12,500
April 9,000 15,500
May 3,750 10,000
June 6,000 12,500
July 3,000 8,500
August 5,000 11,500
Required: Using Least Square Method

1. Compute:
a. the variable cost per unit
b. the total fixed costs
2. Compute for the total costs if the production is 7,800 units will be
produced
Solution: X*Y X*X
Month X Y XY X2
January 8,000 14,000 112,000,000 64,000,000
February 4,500 10,000 45,000,000 20,250,000
March 7,000 12,500 87,500,000 49,000,000
April 9,000 15,500 139,500,000 81,000,000
May 3,750 10,000 37,500,000 14,062,500
June 6,000 12,500 75,000,000 36,000,000
July 3,000 8,500 25,500,000 9,000,000
August 5,000 11,500 57,500,000 25,000,000
∑ = TOTAL 46,250 94,500 579,500,000 298,312,500
1. a
Equation 2: ∑y = na + b∑x
Equation 3: ∑xy = ∑xa + b∑x2
Equation 2: 94,500 = 8a + b(46,250)

Equation 3: 579,500,000 = 46,250a + b(298,312,500)
Multiply the least common multiple to eliminate “a” on both sides

Equation 2: 94,500 = 8a + b(46,250)
(5,781.25)
Equation 3: 579,500,000 = 46,250a + b(298,312,500)
Proceed to subtraction of the equation 2 and equation 3

546,328,125 = 46,250a + b(267,382,812.50)
- 579,500,000 = 46,250a + b(298,312,500)
33,171,872 = + b(30,929,687.5)
33,171,872
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b = ---------------------------
30,929,687.50
b = 1.0725
1.b
Using Equation 2:
94,500 = 8a + 1.0725(46,250)
8a = 94,500 - 49,602.80
8a = 44,897.20
44,897.20
a = --------------------
8
a = 5,612.15
Using Equation 3:
579,500,000 = 46,250a + 1.0725(298,312,500)
46,250a = 579,500,000 - 319,938,055.18
46,250a = 259,561,944.82
259,561,944.82
a = --------------------------------
46,250
a = 5,612.15
3. Using the Equation: Y = a +bx
Y = 5,612.15 + 7,800(1.0725)
Y = 5,612.15 + 8,365.50
Y = 13,977.65
Common Costs and Joint Costs

Common costs are costs that are employed in two or more department, operation,
accounting periods, services or commodities. This are cost that need allocation.
Example: Cost of depreciation of a building that are needed to be allocated to the

departments based on floor area that are used by that department accordingly.
Joint costs are costs that are apportioned to the products as these are product cost of
a process that produces more than one product and that the costs of the direct
materials, direct labor and factory overhead are incurred that are allocated to the
product at split-off point, which the product are already separable to each other. This
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cost are not directly identifiable to any of the products, thus allocation is needed for the
products that are produced to absorb the cost of the production.
Capital Expenditure and Revenue Expenditures

Capital expenditures are expenditures of the company that will give benefits to more
than one(1) accounting periods. These costs are allocated to the different accounting
periods (e.g. depreciation, amortization and depletion)
Revenue expenditures are expenses that are charge directly to the current period this
is also the same with the term period costs.
Controllable Costs and Non-controllable Costs

Controllable costs are costs that can be manage by the managers that has power to
authorize the costs. E.g. Sales expenses and advertising costs are controllable costs
Non-controllable costs are those cost that cannot be managed or controlled by the
managers. E.g. Depreciation, amortization and depletion.
Cost Necessary for Planning, Control and Analytical Processes

Standard Costs are costs of direct materials, direct labor and factory overhead that are
predetermined and established by the organization for a product from the accumulated
past experiences and date from research studies. This is the benchmark of
management by accountant for budgetary cotrol system.
Opportunity Costs are costs of the alternative that are given up. Example beow:
Alternative 1. You are going to buy fone and load a prepaid worth P/ 15,000 and P/ 600
load per month.
Alternative 2. You are going to get a plan from a telecom company P/ 500.00 per
month for 2 years.
Therefore, if you chose to Alternative 2 then the benefit of the Alternative 1 is

considered as opportunity costs.
Differential Costs are cost that are called incremental or decremental costs that are
present in both alternatives. Changes of the costs are employs the revenue and cost
that are called marginal cost and marginal revenue. This maybe variable or fixed.
Example:
PARTICULARS Proposed Actual DIFFERENCE

Revenue 1,350,000 980,000 370,000
Cost of Goods Sold 650,000 420,000 230,000
Advertising 60,000 90,000 (30,000)
Commission 10,000 45,000 (35,000)
Warehouse Depreciation 100,000 85,000 15,000
Other Expenses 90,000 90,000 -
Total Expenses 910,000 730,000 180,000
Net Income 440,000 250,000 190,000
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Relevant Costs are future costs that are changing across the alternatives. All the cost
in the table above except other expenses are considered relevant costs.
Out-of-Pocket Costs are cost that require payment of money or this are cost that are
petty in nature.
Example: The employee will pay fare for the taxi P/ 90.00, then, this cost is considered
as pocket cost as this cost should be paid in cash.
Sunk Costs are costs that are historical and cannot be change anymore.
Example: The company purchase machine P/ 200,000 for special purpose. The P/
200,000 is the outlay and cannot be change therefore this is sunk costs.
Let’s Check!
I. Questions:
1. What are the differences between product costs and period costs?
________________________________________________________
________________________________________________________
________________________________________________________
2. What is the difference between direct costs and indirect costs?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is the difference between common cost and joint cost?

________________________________________________________
________________________________________________________
________________________________________________________
4. What is/are differences between controllable and non-controllable costs?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. Factory rent is a variable cost.
2. Commission of salesmen is variable cost.
3. President’s salary is a manufacturing cost.
4. Variable cost will vary as to total but constant as to per unit.
5. In a manufacturing concern, prime costs are direct costs.
6. Fixed cost per unit will increase as the volume of production increases.
7. Product costs are consist of prime costs and factory overhead.
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8. A cost that is present in alternative 1 but absent in whole or part under other
alternative is known as differential costs.
9. The salary of factory foreman is a factory overhead.
10. Prime cost is always variable.

1. Wages for factory machine operator of a manufacturing firm are an element
of
a. Prime cost only c. Both prime cost and conversion cost
b. Conversion cost only d. Neither prime cost nor conversion cost
2. Indirect costs are also known as:
a. Differential costs c. Common costs
b. Opportunity costs d. Relevant costs
3. Fixed cost
a. Increases on per unit basis as the number of units produce increases
b. Is constant if expressed on a per unit basis
c. Remains the same as to per unit even the production decreases
d. Not affected by the change in activity.
4. In general, which of the following costs could usually be most reliably
predicted is:
a. Variable cost per unit c. Fixed cost per unit
b. Total variable cost d. Total fixed cost
5. In a job cost system, factory overhead is
a. An indirect cost that are necessary element of the production
b. A direct costs that are necessary element of the production
c. A direct costs but not necessary element of the production
d. An indirect cost but not necessary element of the production
6. During the month of June, Julrald Company produced a product the will be
sold for P 20.00 per unit. The fixed cost of the company is P 154,000.00,
while the operating profit is P 26,000.00 and the company produced 12,000
units of this products then what is the variable cost per unit?
a. P 5.00 b. P 4.50 c. P 6.00 d. 7.17
7. Jovani Company produce a 5,500 outdoor chairs for Job Order No. 250.
Each of the chair require 2.2 hours of direct labor for 8.90 per hour. The total
material cost is P 51,700 and the total factory overhead is P 53,845 was
traced to Order 250. How much is the prime cost per unit?
a. 38.77 b. 29.77 c. 28.98 d. 19.58
8. Based on the above information, what is the total cost per unit cost of this
order?
a. 38.77 b. 37.88 c. 36.99 d. 28.09
9. Nealshen company incurs a total selling and administrative expenses of P
30,000 to produce 1,000 units of product which will be sold for P 95.00. The
company spend P 25.00 per unit for direct materials, whereas, P 16.00 per
unit for direct labor and the factory overhead per unit 76% of the cost of
direct material. What is the conversion costs per unit?
a. P 41.00 b. 44.00 c. 35.00 d. 45.00
10. Based on the above information, what is the Cost of goods sold per unit?
a. P 60.00 b. 44.00 c. 41.00 d. 35.00
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Let’s Analyze!
Ethyl Company incurred the following costs last year

Direct materials P 150,000
Direct labor 220,000
Selling expenses 136,000
Factory overhead 250,000
Administrative expenses 112,000
Units produced is 10,000 and sold 9,800 at P 91.00 each.
Compute for the following:

a. Prime cost per unit
b. Conversion cost per unit
c. Cost of goods sold
d. Gross profit per unit
e. Operating income is
In a Nutshell
Zombania Corporation produces and sells strawberry flavoured fitness drink. Over the
last five months the company had the following production costs and production volume
Month Costs Volume in boxes
July P 6,000 12
August 6,659 14
September 8,370 18
October 8,800 19
November 8,050 17
Requirement:
1. Using high-low method, what is the fixed cost per month for fitness drink
production?
2. Using high-low method, what is the total cost if the company will produce 25
boxes of strawberry flavoured fitness drink?
3. Using least square method, what is the variable cost per box of fitness
drink?
Q&A List
1.
2.
3.
4.
5.
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Keywords index
Inventoriable Cost Mixed Cost
Prime Cost Prime Cost
Conversion Cost Common Cost
Direct Cost Joint Cost
Indirect Cost Capital Expenditure
Prime Cost Revenue Expenditure
Variable Cost Product Cost
Fixed Cost
lesson:
Hill Company, Inc.
Note:
Big Picture in Focus: ULOg. Define the job order costing system and
identify the firms that uses job order costing system, differentiate the types
of forms that are used in the job order costing system and the system of
cost accumulation for materials and prepare of the job cost sheets.
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Metalanguage
For you to demonstrate ULOg, you will need operational understanding of the terms
enumerated below.
Job Order Costing is a system for assigning and accumulating manufacturing costs of
an individual unit of output.
Job order costs sheet is a document used to record manufacturing costs and is
prepared by companies that use job-order costing system to compute and allocate costs
to products and services.
Essential Knowledge
Job Order Costing System

Job order costing system is a procedure that keeps the costs information during their
manufacture and construction separate in each jod or contracts. This method is applied
by shipbuilders, printers, construction engineers, repair shops, factories, workshops and
other. The cost per unit will be shown in each record for each job, contract and work
order. This identify each job produce and charge the cost in each job.
The quantity of the products are conveniently and economically produce and costed as
each job is considered as one lot, as the method is costing order by lots. The product
costs are assigned directly to the job order number or the lot number. This costs are
recorde in the summary sheet called the job order cost sheet, this sheet will collect
and accummulate the product costs that are applicable to a specific job.
Example of a Job Order Costs Sheet
Job Cost Sheet
Job Number: _____________ Description: _______________
Date Started: _____________ Date Completed: ____________
Number of Units Completed: ____________________
Direct Materials
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Date Requisition No. Quantity Unit Price Cost
Direct Labor
Factory Overhead
Date Activity Base Quantity Application Rate Cost
Cost Summary:
Direct Materials
Direct Labor
Factory Overhead Applied .
Total Costs .
ILLUSTRATION
Job 202 uses 2 types of material, X and Y. In order to produce 2,000 units of product
The company uses 1,000 pounds of material X and 2,000 pound of Material Y. the price
per pound of material X is P/ 23.00 and Material Y is P/ 15.00. The direct labor is 2.5
hours per unit at P/ 100.00 per hour. And the factory overhead is P/ 125 per direct labor
hours
Job Cost Sheet

Job Number: ___Job 202____ Description: _Finished Product___
Date Started: ____1/1/2020__ Date Completed: __1/30/2020___
Number of Units Completed: ____2,000 units______
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Direct Materials
Date Requisition Quantity Unit Price Cost
No./Particulars
1/1/2020 00000/Material X 1,000 23 23,000
00000/Material Y 2,000 15 30,000
Direct Labor
1/1/2020 00001 5,000 100 50,000
Factory Overhead
1/30/2020 Direct Labour Hours 5,000 125 62,500
Cost Summary:
Direct Materials 53,000.00
Direct Labor 50,000.00
Factory Overhead Applied 62,500.00 .
Total Costs 165,500.00 .
Documents Used by Job Order Costing that provides Major Source of Information
Job order cost sheet is a document that collects and accumulates the production costs
in every job of the producing department.
Materials stock card is a record for perpetual inventory system that provides information
about the materials for the controls of materials in the company
Finished goods stock card is a document that are controls for the unsold finished goods
of the firm
Factory overhead control cost record is a document that is used to accumulate and
collects actual indirect costs of the production in producing the product.
Material requisition is a form that is use when the department need materials for thier
production. It specifies the unit cost, the quantity and the description of the materials
they need.
Time ticket a document needed in allocating and charging the cost that are done for
each job. This specifies the rate per hour of the emplyee in the specific job they worked
and the specific time they spent on that specific job, while clock card is needed by the
accounting department for payroll purposes.
Accounting Procedure for Materials

Purchase of materials and supplies
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Journal Entry:
Materials xxxxx
Return of materials and supplies to supplier

Journal Entry:
Materials xxxxx
Issuance of direct materials to production
Journal Entry:
Work In Process – Job AAA xxxxx
Work In Process – Job BBB xxxxx
Work In Process – Job CCC xxxxx
Materials xxxxx
Issuance of indirect materials to production
Journal Entry:
Materials xxxxx
Return of direct materials from production to warehouse

Materials xxxxx
Work In Process – Specific Job xxxxx
Return of indirect material from production to warehouse

Materials xxxxx
Illustration of the materials account:

MATERIALS
1. Beginning Inventory 1. Issuance of direct materials
2. Purchases of materials 2. Issuance of indirect materials
3. Freight In 3. Return to suppliers
4. Return from factory
Accounting Procedures for Labor
Setting up of payroll liability
Journal Entry:
Payroll xxxxx
Withholding Taxes Payable xxxxx
SSS Premium Payable xxxxx
PhilHealth Contribution Payable xxxxx
Pag-Ibig Premium Payable xxxxx
Distribution of Payroll
Journal Entry:
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Selling and Administrative Expenses Control xxxxx
Payroll xxxxx
Payment of Payroll
Journal Entry:
Cash xxxxx
The summary of Payroll
Payroll
2. Salaries and wages earned by 1. Distribution of payroll to work in
personnel during the period. process, factory overhead or
expenses.
Accrued Payroll
1. Payment of salaries and wages 1. Beginning Balance
earned by personnel during the 2. Accrual of payroll earned by
period. personnel during the period.
Accounting Procedures for Factory Overhead
Occurrence of actual factory overhead.

Journal Entry:
Various Accounts** xxxxx
**Cash/Accounts Payable/Contra Asset accounts
Application of factory overhead to production

Journal Entry:
To close the two factory overhead accounts with under applied factory overhead
Journal Entry:
To close the under applied factory overhead

Journal Entry:
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Journal Entry:
To close the two factory overhead accounts with over applied factory overhead
Journal Entry: (Over Applied)
To close the over applied factory overhead

Journal Entry:
Journal Entry:
Factory Overhead Control

1. Indirect materials used in the 1. Closing of factory overhead accounts
production
2. Indirect labor used in the production
3. Cost of indirect expenses from
suppliers
4. Cost of indirect expenses from the
company
Factory Overhead Applied

1. Closing of factory overhead 1. Application of factory overhead to
accounts the production
Over Applied Factory Overhead

1. Closing to the cost of goods sold 1. Incurrence if factory overhead
account applied is greater than the factory
overhead control
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Under Applied Factory Overhead

1. Incurrence if factory overhead 1. Closing to the cost of goods sold
control is higher than factory account
overhead applied
Work In Process
1. Beginning balance 1. Cost of the completed goods
2. Cost of direct materials used in the 2. Cost of materials return to
production warehouse
3. Cost of direct labor used in the
production
4. Amount of the application of factory
overhead
Finished Goods
1. Beginning balance 1. Cost of sold goods
2. Cost of goods completed
3. Costs of goods returned by
customers
Cost of Goods Sold

1. Cost of sold goods 1. Cost of goods returned by customers
2. Closing of under applied factory 2. Closing of over applied factory
overhead overhead
3. Closing to income summary
COMPREHENSIVE ILLUSTRATION
Dillatropost Company provides information about the production for the year. The
company has 3 jobs for the year namely: Job 2000, Job 3000 and Job 4000. They also
uses two types of materials, the material A and the material B.
1. Purchase of materials for the year P/ 2,000,000.00, which is 50% material A,

45% Material B and the remaining is indirect materials
2. The company uses FIFO method of issuing the materials and issue the 90% of
the materials to production, 30% is charge to Job 2000 the same with the Job
4000 and rest are charge to Job 3000. The 75% of the indirect materials are
also charge to the production.
3. The company returned the 5% of Material A and 10% of Material B to
suppliers.
4. Payroll during the year amounted to P/ 2,200,000 of which alloacted to the job
at 25%, 30%, and 30%. The 10% is indirect labor and the remaining are selling
and administrative expenses.
SSS 60,500
Pag-Ibig 44,000
PhilHealth 30,000
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Withholding Taxes 45,600

5. Payment of aacrued payroll
6. Factory overhaed are applied at 125% of the direct lobor costs.
7. The company incurred and paid P/ 1,205,500 factory expenses and supplies
and accrue another 305,000 as selling and adminidtrative expenses.
8. The depreciation of the building (factory 75%, office 25%) 290,000.
9. The depreciation of the factory PPE is 245,000
10. The Job 2000(Commodity XXX) and the Job 4000(Commodiy AAA) are
completed during the year.
11. Sold the ½ of the Commodity AAA (one-half is on account and the rest is cash)
and ¾ of Commodity XXX(30% is on account and the remaning is cash). The
product are sold at 30% above costs.
12. Collection in full of Commodity XXX sales on account and ½ of the Commodity
AAA sales on account.
13. Paid the ¾ of the accrued expenses.
Requirements:
1. Journalized the transactions above

2. Prepare Job Order Cost Sheet
3. Prepare Income Statement for the year and Statement of Financial
Position
Answer for Requirement No. 1.
1. Materials 2,000,000
Cash 2,000,000
Purchases for cash
2. Work In Process – Job 2000 513,000

Work In Process – Job 3000 684,000
Materials 1,785,000
Issuance of materials
Material A 2,000,000 * 50% * 90% = P/ 900,000

Material B 2,000,000 * 45% * 90% = P/ 810,000
Indirect Materials 2,000,000 * 5% * 75% = P/ 75,000
Total P/ 1,785,000
30% 40% 30%
Job 2000 Job 3000 Job 4000
Material A 270,000 360,000 270,000
Material B 243,000 324,000 243,000
Total 513,000 684,000 513,000
3. Cash 140,000
Materials 140,000
Return of materials to supplier
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Material A 1,000,000 * 5% = 50,000

Material B 900,000 * 10% = 90,000
Total 140,000
4. Payroll 2,200,000
SSS Premium Payable 60,500
PhilHealth Contribution Payable 44,000
Pag-Ibig Premium Payable 30,000
Withholding Taxes Payable 45,600
Accrued Payroll 2,019,900
Accrual of Payroll

Payroll 2,200,000
Distribution of payroll
Labor Cost FOH
Direct Labor (Job 2000) 2,200,000 * 25% = 550,000 *1.25 = 687,500
Direct Labor (Job 3000) 2,200,000 * 30% = 660,000 *1.25 = 825,000
Direct Labor (Job 4000) 2,200,000 * 30% = 660,000 *1.25 = 825,000
Indirect Labor (Job 4000) 2,200,000 * 10% = 220,000
Labor Expenses (Job 4000) 2,200,000 * 5% = 110,000 .
Total P/ 2,200,000 2,337,500
5. Accrued Payroll 2,019,900

Cash 2,019,900
Payment of salaries and wages
6. Work In Process – Job 2000 687,500

Factory Overhead Applied 2,337,500
Application of factory overhead
7. Factory Overhead Control 1,205,500
Cash 1, 205,500
Accrued Expenses 305,000
Payment of expenses

Accumulated Depreciation – Building 290,000
Recognition of depreciation of the building
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Accumulated Depreciation – PPE 245,000

Recognition of depreciation for PPE.
10. Finished Goods 3,748,500

Work In Process – Job 2000 1,750,500
Work In Process – Job 4000 1,998,000
Transfer of completed goods from production to warehouse.
Job 2000 Job 4000 Total

Direct Materials 513,000 513,000 1,026,000
Direct Labor 550,000 660,000 1,210,000
Factory Overhead Applied 687,500 825,000 1,512,500
Total 1,750,500 1,998,000 3,748,500
11. Cash 1,844,066.25

Accounts Receivables 1,161,371.75
Sales 3,005,437.50
Sold the merchandise
Cost of Goods Sold 2,311,875.00

Finished Goods 2.311,875.00
Cost of the sold goods
Sales: Cash Credit Total

Commodity AAA 649,350.00 649,350.00 1,298,700.00
Commodity XXX 1,194,716.25 512,021.25 1,706,737.50
Total 1,844,066.25 1,161,371.25 3,005,437.50
Commodity AAA (1,998,000 * 50% * 130%) = 1,298,700.00

Commodity XXX (1,750,500 * 75% * 130%) = 1,706,737.50
Total 3,005,437.50
Costs:
Commodity AAA (1,998,000 * 50%) = 999,000.00
Commodity XXX (1,750,500 * 75%) = 1,312,875.00
Total 2,311,875.00
12. Cash 836,696.25
Accounts Receivables 836,696.25
Collection of accounts
Commodity XXX = 512,021.25

Commodity AAA (649,350.00*50%) = 324,675.00
Total 836,696.25
13. Accrued Expenses 228,750

Cash (305,000 * 75%) 228,750
Partial payment of accrued expenses
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T-ACCOUNTS:
CASH ACCOUNTS RECEIVABLES

3. 140,000 1. 2,000,000 11. 1,161,371.75 12. 836,696.25
11. 1,844,066.25 5. 2,019,000
12. 836,696.25 7. 1,205,500
13. 228,750
2,820,762.50 5,453,250.00 1,161,371.75 836,696.25
2,632,487.50 324,675.50
MATERIALS WORK IN PROCESS – JOB 2000

1. 2,000,000 2. 1,785,000 2. 513,000 10. 1,750,500
3. 140,000 4. 550,000
6. 687,500
2,000,000 1,925,000 1,750,500 1,750,500
75,000 0
WORK IN PROCESS – JOB 3000 WORK IN PROCESS – JOB 4000

2. 684,000 2. 513,000 10. 1,998,000
4. 660,000 4. 660,000
6. 825,000 6. 825,000
2,169,000 1,998,000 1,998,000
2,169,000 0
FACTORY OVERHEAD CONTROL FACTORY OVERHEAD APPLIED

2. 75,000 6. 2,337,500
4. 220,000
7. 1,205,500
8. 217,500
9. 245,000
1,963,000 2,337,500
ACCUMULATED DEP. - BUILDING ACCUMULATED DEP. - PPE

8. 290,000 9. 245,000
290,000 245,000
FINISHED GOODS ACCRUED EXPENSES

10. 3,748,500 2,311,875 13. 228,750 7. 305,000
3,748,500 2,311,875 228,750 305,000
1,436,625 76,250
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SALES SEL. & ADMIN. EXPENSE CONTROL

11. 3,005,437.50 4. 110,000
7. 305,000
8. 72,500
3,005,437.50 487,500
PAYROLL ACCRUED PAYROLL

4. 2,200,000 4. 2,200,000 5. 2,019,900 4. 2,019,900
2,200,000 2,200,000 2,019,900 2,019,900
0 0
SSS PREMIUM PAYABLE PHILHEALTH CONTRIBUTION PAYABLE

4. 60,500 4. 44,000
60,500 44,000
PAG-IBIG PREMIUM PAYABLE WITHHOLDING TAXES PAYABLE

4. 30,000 4. 45,600
30,000 45,600
Job Cost Sheet

Commodity XXX
Job Number: ___Job 2000____ Description: _______XXX________
Date Started: _01/01/2020 _ Date Completed: ___12/31/2020_
Direct Materials
Date Requisition No./Particulars Quantity Unit Price Cost
1/1/2020 0000/Material A 270,000
1/1/2020 0000/Material B 243,000
513,000
Direct Labor
1/1/2020 00000 550,000
550,000
Factory Overhead
1/1/2020 Direct Labor Costs 550,000 125% 687,500
687,500
Cost Summary:
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Factory Overhead Applied 687,500.
Total Costs 1,750,500
Job Cost Sheet
OOO
Job Number: ___Job 3000____ Description:
_______OOO________
Direct Materials
1/1/2020 0000/Material A 360,000
1/1/2020 0000/Material B 324,000
684,000
Direct Labor
1/1/2020 00000 660,000
660,000
Factory Overhead
825,000
Cost Summary:
Job Cost Sheet

Commodity AAA
Job Number: ___Job 4000____ Description: _______AAA________
Direct Materials
1/1/2020 0000/Material A 270,000
1/1/2020 0000/Material B 243,000
513,000
Direct Labor
1/1/2020 00000 660,000
660,000
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Factory Overhead
825,000
Cost Summary:
Sales 3,005,437.50
Less: Cost of Goods Sold
Raw Materials Inventory, Beginning 0
Add: Net Purchases
Purchases 2,000,000
Less: Purchase Returns and Allowances (140,000) 1,860,000
Raw Materials Available for Sale 1,860,000
Less: Raw Materials Inventory, End 75,000
Indirect Materials used 75,000 (150,000)
Direct Materials Used 1,710,000
Factory Overhead Applied 2,337,500
Add: Work In Process Inventory, Beginning 0
Total Cost of Goods Place into Process 5,917,500
Less: Work In Process Inventory, Ending (2,169,000)
Cost of Goods Manufactured 3,748,500
Add: Finished Goods Inventory, Beginning 0
Cost of Goods Available for Sale 3,748,500
Less: Finished Goods Inventory,Ending (1,436,625) 2,311,875.00
Gross Profit 693,562.50
Less: Selling and Administrative Expenses 487,500.00
Net Profit 206,062.50
Let’s Check!
I. Questions:
1. What is job order costing?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is job order cost sheet?

________________________________________________________
________________________________________________________
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________________________________________________________
3. What are the forms or documents necessary to implement job order costing in
the company?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The Work In Process account is debited when raw materials are purchased.
2. The job order cost sheet is the support document for raw materials.
3. If the actual cost is incurred by the company then it should be recognized in
the factory overhead applied.
4. If the actual factory overhead is higher than factory overhead applied then it
will result to under applied factory overhead.
5. A company producing furniture would probably use a job order cost system.
6. Most factory overhead costs are direct cost and therefore can be easily
identified with specific jobs.
7. Any balance in the Work In Process account at the end of a period should be
closed to Cost of Goods Sold.
8. The job cost sheet can be discarded once the production is completed,
9. In a job order cost system costs are identified in a particular job rather than a
set of time period.
10. The cost of indirect materials used in production is added to the factory
overhead account.
1. A typical job-cost record would provide information about all of the following
items related to an order except:
a. administrative costs. c. direct labor costs incurred.
b. applied manufacturing overhead. d. direct labor hours worked.
2. Which of the following statements about material requisitions is false?
a. Material requisitions are often computerized.
b. Material requisitions are a common example of source documents.
c. Material requisitions contain information that is useful to the cost
accounting department.
d. Material requisitions authorize the transfer of materials from the production
floor to the raw materials warehouse.
3. Which of the following manufacturers would most likely use job-order
costing?
a. Microchip processors. c. Custom-furniture manufacturers.
b. Gasoline refiners. d. Fertilizer manufacturers
4. The assignment of direct labor cost to individual jobs is based on:
a. an estimate of the total time spent on the job.
b. actual total payroll cost divided equally among all jobs in process.
c. estimated total payroll cost divided equally among all jobs in process.
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d. the actual time spent on each job multiplied by the wage rate.
5. Manufacturing overhead:
a. includes direct materials, indirect materials, indirect labor, and factory
depreciation.
b. is easily traced to jobs.
c. should not be assigned to individual jobs because it bears no obvious
relationship to them.
d. is a pool of indirect production costs that must somehow be attached to
each unit manufactured.
6. The following information relates to October:
Production supervisor's salary: P 2,500
Factory maintenance wages: 250 hours at P 8 per hour
The journal entry to record the preceding information is:
a. Manufacturing Overhead 4,500
Wages Payable 4,500
b. Wages Payable 4,500
Manufacturing Overhead 4,500
c. Work-in-Process Inventory 4,500
Wages Payable 4,500
d. Work-in-Process Inventory 2,500
Manufacturing Overhead 2,000
Wages Payable 4,500
7. Bandale Company, which applies overhead at the rate of 190% of direct
labor cost, began work on job no. 101 during June. The job was completed
in July and sold during August, having accumulated direct material and labor
charges of P 27,000 and P 15,000, respectively. On the basis of this
information, the total overhead applied to job no. 101 amounted to:
a. P 28,500. c. P 51,300.
b. P 70,500. d. P 79,800.
8. Mendinian, Inc., an advertising agency, applies overhead to jobs on the basis
of direct professional labor hours. Overhead was estimated to be P 150,000,
direct professional labor hours were estimated to be 15,000, and direct
professional labor cost was projected to be P 225,000. During the year,
Media incurred actual overhead costs of P 146,000, actual direct professional
labor hours of 14,500, and actual direct labor cost of P 222,000. By year-
end, the firm's overhead was:
a. P 1,000 underapplied. c. P 1,000 overapplied.
b. P 4,000 underapplied. d. P 4,000 overapplied.
9. Mayward Company applies overhead at P 5 per machine hour. During March
it worked 10,000 hours and overapplied overhead by P 3,000. Actual
overhead was
a. P 53,000 b. P 50,000 c. P 47,000 d. P 10,000
10. Cajun Company. uses a job order costing system. During April 2020, the
following costs appeared in the Work in Process Inventory account:
Beginning balance P 24,000
Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
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Cost of goods manufactured 185,000
Cajun Company applies overhead on the basis of direct labor cost. There
was only one job left in Work in Process at the end of April which contained P
5,600 of overhead. What amount of direct material was included in this job?
a. P 4,400 b. P 4,480 c. P 6,920 d. P 8,000
Let’s Analyze!
Problem 1:
Cetromery, Inc., which uses a job-costing system, is a labor-intensive firm, with many
skilled craftspeople on the payroll. Job no. 789 was the only job in process on January
1, having costs of P 22,500 as of that date. If the factory overhead is applied to the
production at 150% of the direct labor cost of the company. Only Job no. 791 was the
only job in production as of January 31.Direct materials used and direct labor incurred
during January were:
Job Direct Materials Direct

No. Labor
789 P 2,000 P 6,000
790 9,000 10,000
791 14,000 8,000
Required:
A. Compute the cost of work-in-process inventory as of January 31.
B. Compute the cost of jobs completed during January.
In a Nutshell
Problem 1
Bolderman Corporation, which began operations on January 1 of the current year,

reported the following information:
Estimated manufacturing overhead P 600,000
Actual manufacturing overhead 639,000
Estimated direct labor cost 480,000
Actual direct labor cost 500,000
Total debits in the Work-in-Process account 1,880,000
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Total credits in the Finished-Goods account 920,000

Bolderman applies manufacturing overhead to jobs on the basis of direct labor cost and
adds a 60% markup to the cost of completed production when finished goods are sold.
On December 31, job no. 18 was the only job that remained in production. That job had
direct-material and direct-labor charges of P16,500 and P36,000, respectively.
Required:
A. Determine the company’s predetermined overhead rate.
B. Determine the amount of under- or overapplied overhead. Be sure to label
your answer.
C. Compute the amount of direct materials used in production.
D. Calculate the balance the company would report as ending work-in-process
inventory.
E. Prepare the journal entry(ies) needed to record Brickman’s sales, which are
all made on account.
Problem 2
Prepare the necessary journal entries from the following information for Anderson
Company, which uses a perpetual inventory system.
a. Purchased raw material on account, $56,700.

b. Requisitioned raw material for production as follows: direct material-80
percent of purchases; indirect material-15 percent of purchases.
c. Direct labor wages of $33,100 are accrued as are indirect labor wages
of $12,500.
d. Overhead incurred and paid for is $66,900.
e. Overhead is applied to production based on 110 percent of direct labor
cost.
f. Goods costing $97,600 were completed during the period.
g. Goods costing $51,320 were sold on account for $77,600.
Q&A List
1.
2.
3.
4.
5.
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lesson:
Hill Company, Inc.
Note:
a. Distinguish the common forms used the purchased and issuance of

materials and analyze and differentiate the systems used in accounting
for materials and compute for the cost of goods sold and ending
inventory using different method of costing;
b. Identify and analysed the common control procedures used in
managing the cost of materials;
c. Analysed the methods of accounting for spoiled units, defective units,
scrap materials and waste materials in a job order costing system;
d. Compute the predetermine rate for factory overhead and apply the
concept of factory overhead applied and control;
e. Allocate the budgeted costs from service department to producing
department by computation using different methods;
f. Analyse accounting for labor concepts and compute for the labor
charge to work in process and factory overhead,
g. Compute for the product cost using process costing system by
preparing cost of production report.
Big Picture in Focus: ULOa. Distinguish the common forms used the
purchased and issuance of materials and analyze and differentiate the
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systems used in accounting for materials and compute for the cost of
goods sold and ending inventory using different method of costing.
Metalanguage
enumerated below.
Purchase Requisition is a document used when an employee needs to make

a purchase or an order request on behalf of their company.
Purchase Order is a commercial document and first official offer issued by a buyer to
a seller indicating types, quantities, and agreed prices for products or services.
Receiving Report is a form of the business that documents what is owed to the
supplier in terms of payment for the goods received or in some cases, return of the
goods and an important record of the merchandise that a retailer has actually received
from a supplier.
Material Requisition is a document used by the production department to

request materials they need to complete a manufacturing process
Perpetual Inventory System a system that involves the continuous updating

of inventory records through the use of stock cards.
Periodic Inventory System is a form of inventory valuation that tracks the beginning
and the ending inventory within the accounting period, where the inventory account is
updated at the end of an accounting period rather than after every sale and purchase.
First In, First Out Costing a method of costing inventory that assumes that the oldest
products in a company's inventory have been sold first.
Average Inventory Costing a method of costing that computes units cost based on the
total cost of goods purchased or produced in a period divided by the total number of
items purchased or produced.
Essential Knowledge
Different Business Forms Used to Support Material Transactions
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Purchase Requisition a written request form the department who need the materials for
them to inform the purchasing department to purchase materials and supplies, as they
need it. The form is produced in two copies the original copy is send to purchasing
department and the other copy will remain in the requesting department. Other
information is shown and presented in Figure 1.
Figure 1.
North Davao Enterprises Inc. 000001
Apokon, Tagum City
Purchase Requisition
Department or Individual making the request: Production Department

Order Date: 1/21/2020 Delivery Date Requested: 1/26/2020
Quantity Description Unit Price Total

200 unit Material A 5.00 1,000
250 unit Material B 10.00 2,500
TOTAL: 3,500
Approved by: _______________
PD – Supervisor
Purchase Order are placed after approval of purchase requisition, this is also a written
request by the company to supplier for a specific goods at a price agreed upon. This is
written In 5 copies, and the copies are sent to the following; the original copy is sent to
the supplier, and copies are given to the following department; accounting department,
accounts payable department, receiving department and a copy will kept by the
purchasing department. The Figure 2 will further give you information about the
purchase order.
Figure 2.
Apokon, Tagum City
Purchase Order
Supplier: Jose Marketing Inc., Order Date: 1/22/2020

Magdum, Tagum City Date Requested by: 1/25/2020
Delivery Terms: FOB Shipping Point Delivery Date Requested: 1/15, n/45
Quantity Description Unit Price Total

200 unit Material A 5.00 1,000
250 unit Material B 10.00 2,500
TOTAL: 3,500
Approved by: _______________
PD – Manager
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Receiving Report is created when the goods ordered from supplier is delivered to your
end as they unpack the delivery they are to count as to specified in the purchase
requisition and purchase order. This is produce in 5 copies the original copies will be
kept in the receiving department, other copies are sent to purchasing department,
accounts payable department, accounting department and storeroom clerk where the
purchase requisition originate. The Figure 3 will figure out the other information written
in the receiving report.
Figure 3.
Apokon, Tagum City
Receiving Report
Supplier: Jose Marketing Date Received: 1/25/2020

Magdum, Tagum City Purchase Order No.: 000001
Quantity Description Discrepancies

200 unit Material A None
250 unit Material B None
Authorized Signature: _______________

Staff
Material Requisition Slip an order from the production department to the storekeeper to
deliver the material to the place designated or to issue the materials to the person who
properly executed requisition and represent the department. The Figure 4. will give you
more information about this
Figure 4.
Apokon, Tagum City
Production Department
Material Requisition Slip
Date Request: 1/29/2020 Date Issued: 1/29/2020

Department Requisitioning: Forming Approved by: John Mendoza-supervisor
Requisition No.: 00001 Issued by: Jus Ten-warehouse in-charge
Quantity Description Job No. Unit Cost Total Cost

50 unit Material A Job 2000 5.00 250.00
10 unit Material B Job 2000 10.00 100.00
TOTAL 2,820.00
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Systems used to account materials issued and ending materials inventory. The system
that can be used either periodic inventory system or perpetual inventory system. Figure
5. Will present the distinguishing characteristics of this two
Figure 5.
Terms Periodic Perpetual
It uses Purchases, Freight Only Material Inventory
in, Purchase discount and account is use instead of
Accounts to be used
Purchase returns and using the four accounts in
allowances account periodic system.
Needed to adjust the
Needed to know the
record and the actual
Physical Count ending balance of
inventory in the
material inventory
warehouse.
This system do not use The inventory is recorded
Record/Documents
stockcards. in the stockcard.
Computed by adding the
Computed by adding all
net purchases to the
the cost of the issued
Cost of Goods Sold beginning material
presented in the stock
inventory and deduct the
card.
ending material inventory.
First In, First Out means that the oldest purchases will issued first and last to be issued
are the current purchases
Illustration
May 1 Beginning balance 100 units @ 50.00 P/ 5,000.00
9 Purchases 800 units @ 52.00 41,600.00
15 Issued 750 units
21 Purchases 500 units @ 51.00 25,500.00
27 Purchases 400 units @ 51.50 20,600.00
29 Issued 650 units
31 Purchases 700 units @ 52.50 36,750.00
Issued 450 units
Issued 250 units
Total Costs 129,450.00
Required: Compute for the Cost of the Direct material used and Ending material
inventory.
a. Using Periodic system
b. Using Perpetual system
Solution for Required a
Total Materials Available for Use 2,500 units

Total Issued 2,100 units
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Ending Material Inventory 400 units
Therefore, the ending inventory is coming from the latest purchase and that is from
purchase on May 31 at a cost of 52.50
So, the ending material inventory is 400 units * 52.50 = 21,000.00
And the direct material used is computed as follows
Material, Beginning 5,000

Purchases (41,600+25,500+20,600+36,750) 124,450
Total Materials Available for Use 129,450
Less: Material, Ending 21,000
Direct Materials Used 108,450
Alternative solution;
The direct material used is the total Cost subtract the ending material inventory
P 129,450.00 – 21,000.00 = 108,450.00
Solution for Required b

Date Received Issued Balance
May 1 100 at 50 5,000
9 800 @ 52.00 100 at 50 5,000
800 at 52 41,600
15 100 at 50
650 at 52 150 at 52 7,800
21 500 @ 51.00 150 @ 52 7,800
500 @ 51 25,500
27 400 @ 51.50 150 @ 52 7,800
500 @ 51 25,500
400 @ 51.50 20,600
29 150 @ 52
500 @ 51 400 @ 51.50 20,600
31 700 @ 52.50 400 @ 51.50 20,600
700 @ 52.50 36,750
31 400 @ 51.50
50 @ 52.50 650 @ 52.50 34,125
31 250 @ 52.50 400 @ 52.50 21,000
The cost of materials used as follows:

100 @ 50 5,000
650 @ 52 33,800
150 @ 52 7,800
500 @ 51 25,500
400 @ 51.50 20,600
50 @ 52.50 2,625
250 @ 52.50 13,125
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Total 2,100 108,450

The material inventory ending is computed as follows
400 @ 52.50 21,000
AVERAGE
Periodic Inventory System – Weighted average method a method the collect and
accumulate the cost of materials available for use and divide the total number of units
available for use.
1 Beginning balance 100 units @ 50.00 P/ 5,000.00

9 Purchases 800 units @ 52.00 41,600.00
21 Purchases 500 units @ 51.00 25,500.00
27 Purchases 400 units @ 51.50 20,600.00
31 Purchases 700 units @ 52.50 36,750.00
2,500 units 129,450.00
Average cost per unit: P 129,450/2,500 = P 51.78
Direct materials used 2,100 * 51.78 = 108,738.00

Materials Inventory, End 400 * 51.78 = 20,712.00
Total 129,450.00
Perpetual Inventory System – Moving average method a method that will compute the
average cost every purchase and purchase return transaction.
Units Cost per unit Total Costs
May 1 100 50.00 P/ 5,000.00
9 800 52.00 41,600.00
900 51.78 46,600.00 = 46,600/900 = 51.78
15 (750) 51.78 (38,833.00)
150 51.78 7,767.00
21 500 51.00 25,500.00
650 51.18 33,267.00 = 33,267/650 = 51.18
27 400 51.50 20,600.00
1,050 51.30 53,867.00 = 53,867/1,050 =
51.30
29 (650) 51.30 (33,346.00)
400 51.30 20,251.00
31 700 52.50 36,750.00
1,100 51.82 57,001.00 = 57,001/1,100 =
51.82
31 (450) 51.82 (23,319.00)
650 51.82 33,682.00
31 (250) 51.82 (12,955.00)
400 51.82 20,727.00
Therefore,
Material Inventory, end = 20,727.00

Direct Material used = (38,833.00+33,346+23,319+12,955) = 108,453
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Comparison to FIFO and Average Methods
FIFO Weighted Average Moving Average

Materials Inventory, Beg 5,000 5,000 5,000
Purchases 124,450 124,450 124,450
Total Materials Available for use 129,450 129,450 129,450
Less: Materials Inventory, End 21,000 20,712 20,727
Direct Labor used 108,450 108,738 108,723
Discounts constitute a reduction in price

Trade discounts (Quantity Discounts) a reduction in price that is related to the volume of
units purchase. This is not recorded as this will just reduce the list price to come up with
the invoice price.
Example: Sunshine Company is to buy materials and supplies in bulk to Moonlight

Corporation and allow the company to a trade discount of 15%. The purchase is worth
1,000,000. To record the transaction is:
Materials (1,000,000*85%) 850,000
Purchases on account.
Same information above except that the trade discount is 10%, 15% and 5%. To record
the transaction is:
Materials (1,000,000*90%*85%*95%) 726,750
Purchases on account.
Cash discounts (sales discounts and purchase discounts) is given for prompt payment
of accounts.
Taken is a method that records purchases and liabilities at gross amount at the time of
purchase the discount is recognized when paid within the discount period.
Not Taken is a method that records purchase and liabilities at net amount at the time of
purchase as the discount is recognized immediately but recognize it as a loss
(Purchase Discount Loss) if payment is beyond the discount period.
Offered is a method that records purchase is recognized at a net amount and the
liabilities at gross amount and recognize the discount in the allowance for purchase
discount at the time of purchase. When payment is made within the discount period
then the allowance is closed and the amount paid is net amount but recognize it as a
loss (Purchase Discount Loss) if payment is beyond the discount period.
Example: Gulianio Corporation is to purchase material X form Radionto Company at

200,000 , terms 2/10, n/45 on June 20, 2020.
Taken
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June 20 Materials 200,000

June 25 Accounts Payable 200,000

Purchase Discount 4,000
Cash 196,000
July 1 Accounts Payable 200,000

Cash 200,000
Not Taken

Cash 196,000

Purchase Discount Loss 4,000
Cash 200,000
Not Taken
Allow for Purchase Discount 4,000

Allow for Purchase discount 4,000
Cash 196,000

Purchase Discount Loss 4,000
Allow for Purchase Discount 4,000
Cash 196,000
FREIGHT IN
Freight In is the amount paid for transporting the materials
Direct charging is a method of charging freight by adding it to the purchases
Relative peso value method – the freight are allocated on the basis of the peso value of
the items purchased
Relative weight method – the freight are allocated on the basis of the weight of the
items purchase
Indirect Charging is a method of charging freight to the factory overhead control account
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Example: Gulianio Corporation is to purchase material X, Y and Z form Radionto

Company the invoice total are: X – 200,000 and weighs 20,000 pounds, Y – 400,000
and weighs 50,000 pounds, Z – 500,000 and weighs 20,000 pounds. The freight on this
shipment weighing 100,000 pounds is 55,000.
Required:
1. Journalized the transaction and the freight using direct charging and indirect
charging.
2. Allocate the freight using Relative peso value method and relative weight method
and compute the cost per pound of materials to be recorded in the ledgers for
Material X, Y, Z.
Answer for Required No. 1

Direct Charging
Materials 1,155,000
Accounts Payable 1,155,000
Indirect Charging
Materials 1,100,000
Accounts Payable 1,155,000
Answer for Required No. 2
Relative peso value method

Mat. Invoice Percentage Share in freight Total Cost Cost per pound
X 200,000 5% 10,000 210,000 10.50
Y 400,000 5% 20,000 410,000 8.20
Z 500,000 5% 25,000 525,000 26.25
Total 1,100,000 55,000
Percentage = 55,000/1,100,000 = 5%
Relative weight method
Mat. Weight Freight Share Total Cost
(Pounds) per pound in freight Cost per pound
X 20,000 61.11% 12,222 212,222 10.61
Y 50,000 61.11% 30,556 430,556 8.61
Z 20,000 61.11% 12,222 512,222 25.61
Total 90,000 55,000 1,155,000
Freight per pound = 55,000/90,000 = 61.11%
Let’s Check!
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I. Questions:
1. What is purchase requisition and purchase order?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is receiving report?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is material requisition slip?

________________________________________________________
________________________________________________________
________________________________________________________
4. What are the differences between periodic inventory system and perpetual
inventory system?
________________________________________________________
________________________________________________________
________________________________________________________
5. What are the differences between FIFO costing and Average costing?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. An overstated ending inventory leads to income understatement.
2. The average costing under perpetual inventory system is the method that
recognizing the average cost per unit in purchases and purchase returns
transactions of the company.
3. Cash discount is given by customers who made bulk purchases.
4. Periodic inventory system uses stock cards to maintain the records of the
inventory of the company.
5. Taken method of recording discount is the method that recognizes allowance
for purchase discount account
1. The use of purchase discount lost account implies that the cost of purchased
inventory is the
a. Invoice price
b. List price
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowed whether taken or not
taken
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2. Theoretically, cash discounts permitted on purchased raw materials should

be
a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
3. What is the method of accounting for inventory in which the cost of goods
sold is recorded each time a sale is made?
a. Professional inventory system c. Periodic inventory system
b. Perpetual inventory system d. Planned inventory system
4. Which of the following is incorrect about the perpetual inventory method?
a. Purchases are recorded as debit to the inventory account
b. The entry to record a sale includes a DR. to COGS and a CR. to inventory
c. After a physical inventory count, inventory is credited for any missing
inventory.
d. Purchase returns are recorded by debiting accounts payable and crediting
purchase returns and allowances
5. In a periodic inventory system, the beginning inventory is
a. Net purchases minus cost of goods sold
b. Net purchases minus ending inventory
c. Total goods available for sale minus net purchases
d. Total goods available for sale minus cost of goods sold
6. Entities must allocate the cost of all goods available for sale between
a. The cost of goods on hand at beginning and the cost of goods acquired
during the period
b. The cost of goods on hand at the end of the period and the cost of
acquired during the period
c. The income statement and the statement of financial position
d. All of the choices are correct.
7. Maximilian's inventory transactions for the month of August were as follows:
Units Unit cost Total cost
01 Aug. Beg. Inventory 20 P4.10 P82.00
10 Aug. Purchases 20 4.40 88.00
12 Aug. Sales 15 ? ?
16 Aug. Purchases 20 4.60 92
20 Aug. Sales 40 ? ?
28 Aug. Sales returns 3 ? ?
Assuming that Maximilian uses the moving average cost flow method, what is
the 20 August cost of sales? (round to the nearest peso)
a. P 164 b. P 176 c. P 184 d. P 170
8. Using the information above, what is the ending inventory of Maximilian if
they use FIFO periodic inventory system?
a. P 22 b. P 13 c. P 35 d. P 80
9. Marianas Company purchase 3 types of materials: material 1, material 2, and
material 3 from Trencherous Corporation that weighs 25,000 pounds, 40,000
pounds and 60,000 pounds, respectively. The company paid a freight of P
36,000. The purchase cost is 2,700,000, 4,500,000 and 6,300,000.
Trencherous provide trade discounts of 10% and 10%.
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If the company is using the direct charging method of recognizing freight

then, what is the cost of recognized as purchases?
a. 10,971,000 c. 10,836,000
b. 10,964,160 d. 13,500,000
10. Using the information above, what is the cost per unit of the material 1 using
relative weight method?
c. 108.288 b. 112.788 c. 105.288 D. 108.588
Let’s Analyze!
Melchor Company purchase merchandise from Gaspar Co. worth 700,000 as list price
on July 25. The company offered a trade discount of 20% and 5%. And the terms of
payment is 2/10/, n/50. The company paid freight of P 15,600 and use indirect charging
method. The payment is made on August 5, 2020.
Required: Journalize the transaction with the corresponding computations.
In a Nutshell
Limbushco Corporation had a balance of inventory on its warehouse costing P 28.00

pesos each and the remaining unit is 250 units. The following are purchase transactions
of the month of July 2020:
Units Unit Cost
July 6 350 28.50
July 17 700 27.80
July 31 450 29.00
On July 31, 2020 the cost on hand show the balance of P 13,745 of this inventory
Required:
1. Using FIFO costing, what is the total units on hand on July 31, 2020?
2. Using Average costing, how much is the total cost of goods sold for July 2020?
Q&A List
1.
2.
3.
4.
5.
Keywords index
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Trade Discount Cash discount

Freight In Perpetual Inventory system
Periodic Inventory system FIFO costing
Average costing
lesson:
Hill Company, Inc.
Note:
Big Picture in Focus: ULOb. Identify and analysed the common control
procedures used in managing the cost of materials;
Metalanguage
enumerated below.
Carrying costs is the total costs of holding inventories
Ordering costs is the total cost of ordering materials
Order point is the point at which order should be place
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Safety stock is the level of inventory that will protect the company from out of stock.
Essential Knowledge
Control Procedures
A good system is important for a company to achieve this, a company should keep the
costs at a minimum level, smooth and uninterruptible schedule. The following concept
should employed in an inventory control system.
Inventory is a result of transaction from purchase and production of goods and reduction
of inventory is the result of normal use and scrapping unneeded items.
The inventory investment is optimized based on quantitative techniques is the

minimization of the carrying cost and ordering costs of inventory. Accurate forecast of
sales and resulting production schedule will result to an efficient purchasing,
management and investment in materials.
Controlling the inventory is really accomplished by scheduling production and forecast

help when to purchase materials. It is more than maintaining a records. Controls are
perform by person who are making judgements base on past experiences but within the
general framework of organizational objectives and policies to achieve them. The
expensive materials that are essential to the production will tend to have focus on
control and more frequently reviewed despite the cost and effort of doing so by
experienced personnel. Methods of inventory will vary dependent on the cost and the
importance of the material to the production. This controls encourages the reduction of
costs by eliminating waste and operational inefficiencies. The effective system is
designed to control the people responsible for expenses because cost don’t control
people but people control the costs.
Commonly Used Control Procedures
Order cycling this procedures uses the time interval to order additional materials. Such
as purchases are every 30th day or 60th day or 90th day. The cycle length depends on
the type of materials. This is used for small items.
Min-Max Method a control procedure that is based on the assumption of maximum and
minimum levels of materials inventory. Minimum level signals re order to increase the
level of inventory to maximum level and it protects from stock out.
Two-Bin Method is a method used for nonessential and inexpensive. In this method the
materials are divided into two separate bins. One bin is ready for used between an
order is received and the next order is places and the other bin is used between the
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rime of ordering and delivery of materials. When 1 bin is empty and use for the
production
Automatic order system is a method used by computerized company that an order is

automatically placed when the level of inventory is at minimum level or the
predetermined order point quantity.
ABC Plan is a methods used by companies with a large number of materials. This uses
different types of method in a different classification of material inventory. This method
is used by expensive materials for production. This plan is a systematic way of grouping
materials into classification separately. Example inexpensive or not critical materials are
control under min-max method and the expensive and critical and a more sophisticated
method such as automatic order system may be used.
Material Control
Two basic aspect of materials control;

1. Physical Control or safeguarding materials
2. Control of the investment
Physical control of materials

Inventories are susceptible to theft and unauthorized use. Thus, inventories must be
protected same as marketable securities. In general effective physical control of
materials involves:
1. Limited access means that only the authorized personnel have access to
materials storage. The materials are issued only if the documents presented
are properly approved for issuance and release
2. Segregation of duties means that the functions should be segregated to
minimize the opportunity of misappropriation of inventories such as per
department purchasing, receiving, storage, use and recording. This
departments must be segregated from each other to eliminate or to manage
risk in the inventory.
3. Accuracy in recording means that the records should permit a correct
judgement and the records should be provide the data for the valuation of
inventories for the preparation of financial statements.
Controlling the investment in materials

The most important objective of control is to maintain the proper balance of materials on
hand as higher value of inventory on hand will also need higher cost and lower value of
inventory sometimes also have a negative effect as this will cause interruptions to your
production.
Order Point is the point in which the order should be place as this is the predetermined
minimum level of inventory on hand.
The calculation of order point needs the following data:
Usage is the anticipated level at which the material is used
Lead time is the estimated interval of time between placing an order and receipt of an
order.
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Safety stock is the estimated level of inventory to protect from running out of stock or
stockout.
Example: The Company’s expected daily usage level of materials is 200 units the
anticipated lead time is 6 days and the estimated safety stock is 750 units. The order
point is 1,950 units.
200 units (daily usage) * 6 days (lead time) 1,200 units
Safety stock 750 units
Order point 1,950 units
Economic Order Quantity
The order or purchase that results to a minimum total cost by considering the carrying
cost and ordering costs.
Factors that are considered in determining ordering costs:

1. Employee benefits of purchasing, receiving and inspecting materials
2. Communication costs associated with ordering
3. Materials accounting and record keeping.
Factors that are considered in determining carrying costs:

1. Material storage and handling costs
2. Interest, Insurance and property taxes.
3. Loss due theft, deterioration or obsolescence.
4. Records and supplies associated with carrying the inventories.
The Company manufactures wooden chairs from the suppliers set. Total annual needs
are 10,000 units at a rate of 25 set per working day. The carrying cost per units is 200
pesos and 625 cost per order.
Required :
a. What is the EOQ?
b. Compute for annual ordering costs and carrying costs
Answer for required a.

EOQ = 2(cost of order)(number of units required annually)
(Cost of carrying 1 unit of material)
EOQ = 2(625)(10,000)
200
EOQ = 12,500,000
200
EOQ = 62,500
EOQ = 250 units
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Answer for required b.

Annual ordering cost 10,000/250 * 625 = 25,000
Annual carrying cost 250/2 * 200 = 25,000
Total cost 50,000
Let’s Check!
I. Questions:
1. What is ordering cost?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is carrying cost?

________________________________________________________
________________________________________________________
________________________________________________________
3. What are the necessary control procedures that will help the organization to
manage material inventory?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. Economic order quantity is the summation of safety stock and order point
2. The purchase price per unit of inventory is irrelevant in lathe economic order
quantity model.
3. Graphically is the economic order quantity is the point where the risks of a
stock out while carrying cost line intersect the ordering cost line
4. The cost that are incurred by company in storing the inventory is carrying
cost.
5. Lead time is the time between the time of order to the time of receipt.
III. Multiple Choices
1. The document authorizing the issuance of materials from the storeroom is

the:
a. purchase requisition c. purchase order
b. materials requisition d. receiving report
2. The result of the economic order quantity formula indicates the
a. Annual quantity of inventory to be carried
b. Annual usage of materials during the year
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c. Safety stock plus estimated inventory for the year

d. Quantity of each individual order during the year
3. The purpose of the economic order quantity model is to
a. Minimize the safety stock
b. Minimize the inventory quantities
c. Minimize the sum of the order costs and the holding cost
d. Minimize the sum of the demand costs and the backlog costs.
4. The elapsed time between placing an order for inventory and receiving the
order is
a. Lead time c. Stock out time
b. Reorder time d. Stocking time
5. A decrease in inventory cost will
a. increase the reorder point
b. decrease the economic order quantity
c. have no effect on the economic order quantity
d. decrease the holding cost percentage
6. An increase in inventory carrying cost will
a. Decrease the economic order quantity
b. Increase the safety stock required
c. Have no effect on the economic order quantity
d. Decrease the number of orders issued per year
7. Cartwright Graphics uses a special purpose paper in 80% of its jobs. The
paper is purchased in 100-sheet packages at a cost of P100 per package.
Management estimates that the cost of placing and receiving a typical order is
P15, and the annual cost of carrying a package in inventory is P1.50.
Cartwright uses 2,600 packages each year. Production is constant, and the
lead time to receive an order is 1 week. The economic order quantity is
approximately:
a. 203 packages. c. 225 packages.
b. 228 packages. d. 565 packages
8. The reorder point is:
a. 25 packages. b. 50 packages. c . 100 packages. d. 203 packages.
9. Chan uses an economic order quantity model and has determined an optimal
order size of 600 units. Annual demand is 18,000 units, ordering costs are
P15 per order, and holding costs are P1.50 per unit. Chan's annual ordering
and holding costs total:
a. P900. b. P1,350. c. P9,900. d. P27,450
10. J Company sells 20,000 radios evenly throughout the year. The cost of
carrying one unit of inventory for one year is P8, and the purchase order cost
per order is P32. What is the economic order quantity?
a. 200 b. 400 c. 283 d. 62
Let’s Analyze!
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Abdolientia Company will manufacture a product that in the estimation during the year
they need a total of 45,000 unit that will need a carrying cost of P 2.00 pesos and an
ordering costs of P 40.00 the cost per unit of material is P 90.00. Assume that the units
will be required evenly throughout the year. The safety stock is 500 units. The leadtime
is 5 days. Use 360 days in a year.
Required:
1. Compute for Economic Order Quantity.
2. Number of orders in a year
3. Average inventory based on economic order quantity
4. Total carrying cost and total ordering cost at economic order quantity.
5. Compute for the order point
In a Nutshell
1. Douglas Corporation operates its factory 300 days per year. Its annual
consumption of Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety
stock of Material Y and its lead time is 12 business days. What is the order point
for Material Y?
2. A company has estimated its economic order quantity for Part A at 2,400 units
for the coming year. If ordering costs are $200 and carrying costs are $.50 per
unit per year, what is the estimated total annual usage?
3. Precious Jewels Corporation produces quality jewelry items for various retailers.
For the coming year, it has estimated it will consume 500 ounces of gold. Its
carrying costs for a year are $2 per ounce. No safety stock is maintained. If the
EOQ is 100 ounces, what would be the estimate for Precious Jewels’ total
carrying costs for the coming year?
Q&A List
1.
2.
3.
4.
5.
Keywords index
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Economic Order Quantity Order Point

Carrying Cost Safety Stock
Ordering Cost Lead Time
lesson:
Hill Company, Inc.
Note:
Big Picture in Focus: ULOc. Analysed the methods of accounting for

spoiled units, defective units, scrap materials and waste materials;
Metalanguage
For you to demonstrate ULOc, you will need operational understanding of the terms
enumerated below.
Spoiled unit is a unit that is rejected at a control inspection. This units are not salable.
Defective unit is a unit that has one for more defects. This units can be rework and
can sold as good unit
Scrap materials are materials that are consists of recyclable materials left over from
product manufacturing and consumption
Waste materials are unwanted or unusable materials and any substance which is
discarded after primary use, or is worthless, defective and of no use.
Essential Knowledge
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Two methods of accounting for spoiled materials
Charge to specific job
The spoilage relates to specific job directly so this would reduce the work in process
account. The amount is equal to the spoiled units multiplied by estimated sale value per
unit.
Spoiled Goods xxxxxx
Work In Process xxxxxx
Charge to all production
The method considers that the reason of spoilage as normal to the company. This is
considered normal as t does not exceed the limit set by the company. The spoiled
goods is equal to the number of spoiled units multiplied by the estimated sale value per
unit. The amount is credited to the work in process the total costs per unit multiplied by
spoiled units and the loss is recognized as part of the factory overhead control. If the
spoiled exceeds the limit set by the company then, it is not normal and the loss on
spoiled unts is charge to the loss account. Therefore, the unit cost per unit originally
charged will not increase anymore even there are spoiled units discovered later on.
Spoiled Goods xxxxxx

Factory overhead control xxxxxx
Work in process xxxxxx
Illustrative case
The company has order to make 8,000 pcs of tables and name it Job 4444. The
company incurred the following costs:
Direct Materials 25.00
Direct Labor 30.00
Factory Overhead(allow. for Spoiled work P 1.00) 33.00
Total 88.00
When the order was completed, 500 were rejected, a normal number and were sold at
50 each.
Requirement:
4. Entries to record if the loss is charge to all production.
5. Entries to record if the loss is charge to specific job.
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a. Work in Process (8,000*88) 704,000

Materials (8,000*25) 200,000
Payroll (8,000*30) 240,000
Factory Overhead Applied (8,000*33) 264,000
b. Spoiled Goods (50*500) 25,000

Factory Overhead Control (38*500) 19,000
Work in Process (88*500) 44,000
c. Finished Goods 660,000

Work in Process 660,000
Start = 704,000/8,000 = P 88.00

Finished = 660,000/7,500 = 88.00
a. Work in Process (8,000*88) 696,000

Materials (8,000*25) 200,000
Payroll (8,000*30) 240,000
b. Spoiled Goods (50*500) 25,000


Start = 696,000/8,000 = P 87.00

Finished = 671,000/7,500 = 89.47
To compute for the difference of the start Cost and the finished cost.
89.47 - 87.00 = 2.47
Cost of spoiled goods 500*87 43,500

Less: Recovered amount from sale (500*50) 25,000
Loss on spoiled units 18,500
Then, the loss are absorbed by the good units = 18,500/7,500 = 2.47
Or
Total cost at the start – (Cost of the Finished Goods units / Goods units)
87.00 – (671,000/7,500)
87.00 – 89.47 = 2.47
Two methods of accounting for defective units
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The defective units are those units that need additional cost of materials, labor and
overhead to reworks the defective units to be saleable as good units.
Charge to specific job
The rework costs relate to specific job directly, as a result work in process account will
increase equal to the rework cost.
Work In Process xxxxxx
Materials xxxxxx
Payroll xxxxxx
FOH Applied xxxxxx
Charge to all production
The rework costs are charge to the factory overhead control account as this is just
normal to the company.
Factory overhead control xxxxxx

Materials xxxxxx
Payroll xxxxxx
FOH Applied xxxxxx
Illustrative case
The company has order to make 8,000 pcs of tables and name it Job 4444. The
company incurred the following costs:
Direct Materials 25.00
Direct Labor 30.00
Factory Overhead(allow. for rework P 1.00) 33.00
Total 88.00
When the order was completed, 500 were found defective and required the following
additional cost to rework materials 4,500, labor, 5,000 and factory overhead is 3,500.
Requirement:
1. Entries to record if the loss is charge to all production.

2. Entries to record if the loss is charge to specific job.
a. Work in Process (8,000*88) 704,000

Materials (8,000*25) 200,000
Payroll (8,000*30) 240,000
b. Factory Overhead Control 13,000

Materials 4,500
Payroll 5,000
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Start and finished = 704,000/8,000 = P 88.00

a. Work in Process (8,000*88) 696,000
Materials (8,000*25) 200,000
Payroll (8,000*30) 240,000
b. Work in process 13,000

Materials 4,500
Payroll 5,000

Start = 696,000/8,000 = P 87.00

Finished = 709,000/8,000 = 88.625
Accounting for scrap materials
It is just the same concept as to the accounting system for spoiled and defective units.
Scrap is recognize as an indication inefficiency if it exceeds the normal level. The
amount of the scrap will be entered as a deduction to material section of the job cost
sheet
1. If the scrap is recovered and trace to a specific job

Scrap/Scarp Materials xxxxxx
Work in Process xxxxxx
2. If the scrap is recovered and not trace to a specific job

Miscellaneous Income xxxxxx
3. If the scrap is recovered are from the factory supplies
FOH Control xxxxxx
Accounting for waste materials
The cost for the waste materials are the disposal cost necessary to eliminate waste in th
company. If the waste exceeds the normal level again indicates an inefficiencies and
signals the management for corrective actions. Although the cost of disposing waste
materials are minimal to most of the company but some company disposal cost involves
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a significant expenditure such as chemical company. The accounting for this is as

follows:
1. If the cost is allocated to all jobs,

FOH Control xxxxxx
Accounts Payable/Cash xxxxxx
2. If the cost is allocated to specific job

Work in Process – (Job Number) xxxxxx
Accounts Payable/Cash xxxxxx
Let’s Check!
I. Questions:
1. What is defective units?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is spoiled units?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is scrap materials?

________________________________________________________
________________________________________________________
________________________________________________________
4. What is waste materials?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The spoiled goods may be sold at a higher than a regular sales.

2. Spoiled units are units that cannot be economically reworked to bring them
up to standard.
3. If waste materials are allocated to the specific job, then it is debited to factory
overhead control account
4. If a substandard product cannot be reworked, it is known as spoiled units
5. If the scrap materials are not traceable to specific job, then the amount
received shall be credited to work in process
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1. A unit that is rejected at a quality control inspection point, but that can be
reworked and sold, is referred to as a
a. spoiled unit b. scrap unit c. abnormal unit d. defective unit
2. In a job order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.
3. Shrinkage should be treated as
a. Defective units c. spoiled units
b. Miscellaneous expense d. a reduction of overhead
4. Abnormal spoilage is
a. spoilage that is forecasted or planned. c. accounted for as a product cost.
b. spoilage that is in excess of planned. d. debited to Cost of Goods Sold.
5. The account to be debited if the cost of reworking the defective product is
charge to all production is
a. Work in process c. Factory overhead applied
b. Factory overhead control d. Finished goods
Let’s Analyze!
Beauty Company manufactures picture frames of all sizes and shapes and uses a job
order costing system. There is always some spoilage in each production run. The
following costs relate to the current run:
Estimated overhead (exclusive of spoilage) P160,000
Spoilage (estimated) 25,000
Sales value of spoiled frames 11,500
Labor hours 100,000
The actual cost of a spoiled picture frame is 7.00. During the year 170 frames are
considered spoiled. Each spoiled frame can be sold for 4. The spoilage is considered a
part of all jobs.
Required:
a. Prepare the journal entry needed to record the spoilage and compute for the
costs per picture frame.
b. Prepare the journal entry if the spoilage relates only to Job #12 rather than
being a part of all production runs and compute for the cost per picture frame.
In a Nutshell
Maximini Corporation produces a product wooden chair that cost P 250 per table
compose of P 90 for materials, P 90 for direct labor and P 80 for factory overhead. The
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company recognizes 200 kg scrap materials to the company that are to be sold for P 5
per kg after producing 2,000 units of wooden shares.
Required:
a. Prepare journal entries if the scrap materials are recovered based on the following:
1. Traced to the specific job
2. Not traceable to the specific job
3. From the factory supplies.
Q&A List
1.
2.
3.
4.
5.
Keywords index
Spoiled units Defective units
Scrap materials Waste materials
lesson:
Hill Company, Inc.
Note:
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Big Picture in Focus: ULOd. Compute the predetermine rate for factory
overhead and apply the concept of factory overhead applied and control;
Metalanguage
enumerated below.
Factory Overhead costs are those cost that are indirect to the production of products.
Variable factory overhead costs are indirect costs that will vary to the level of
production in the relevant range.
Fixed variable overhead costs are indirect cost that will remain constant as to total
even there are increase or decrease in production level within the relevant range.
Mixed factory overhead costs are those costs that are having the characteristics of
both variable and fixed factory overhead.
Budgeted factory overhead costs are costs for the planned production of the
company for the future period.
Essential Knowledge
FACTORY OVERHEAD
All cost incurred related to factory that are indirect cost. All the cost that are not direct
materials and direct labor is now considered as factory overhead.
There are three categories of factory overhead are:
Variable factory overhead cost is the cost that will vary directly as to the change in level
of production within the relevant range as to total, it means that the production
increases the total variable factory overhead variable cost will also increase but the
variable FOH cost per unit is constant and does not change as the level of production
changes.
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Fixed factory overhead cost – cost that is constant as to total and does not vary whith
the changes in the level of production but in fixed FOH cost per unit, it vary inversely to
the production, means that the production increases the cost per unit will decrease and
vice versa.
Mixed factory overhead cost are cost that are partially fixed and partially variable in
nature and have characteristics of both fixed and variable. This cost must be separated
properly for the purpose of planning and control of the costs within the organization.
Budgeted Factory Overhead Costs are costs that are prepared for the plan of the
expected level of production. In order to create a flexible budget the separation of the
cost in the classification is a must.
COMPUTATION OF THE FACTORY OVERHEAD PREDETERMINED RATE

The basis are the following of the computation:
Physical output or the units produced –expressed in peso per unit
Estimated FOH
Factory overhead rate =-------------------------------------------
Estimated Units Produced
Direct materials cost -it is expressed in a percentage.
Estimated FOH
Factory overhead rate =-------------------------------------------------
Estimated Direct Material Cost
Direct labor cost -it is also expressed in a percentage.
Estimated FOH
Factory overhead rate =----------------------------------------------
Estimated Direct Labor Cost
Direct labor hour -expressed in peso per hour
Estimated FOH
Factory overhead rate =-----------------------------------------------
Estimated Direct Labor Hours
Machine hours -expressed in peso per hour
Estimated FOH
Estimated Machine Hours
Illustration
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Melchorians Corporation provides expection for the next year planned production. They
expect that the FOH cost is P/ 12,000,000. It is estimated that the units produced is
1,000,000 units that will need 400,000 machine hours and 500,000 direct Labor hours.
And the materials needed to produce 1 unit is 12 pounds at P 25 per pounds and the
direct labor rate per hour is P 20 per hour
Required:
Compute for the factory overhead rate for the following bases physical output, DL cost,
DL hours, direct material cost, machine hours.
Answer for the required:
Physical output or the units produced
Estimated FOH
Estimated Units Produced
12,000,000
1,000,000
Factory overhead rate = 12/ unit
Direct materials cost
Estimated FOH
Factory overhead rate =-------------------------------------------------
Estimated Direct Material Cost
12,000,000
30,000,000
Factory overhead rate = 40% of direct material cost
Direct labor cost
Estimated FOH
Factory overhead rate =----------------------------------------------
Estimated Direct Labor Cost
12,000,000
10,000,000
Factory overhead rate = 120% of direct labor cost
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Direct labor hour
Estimated FOH
Factory overhead rate =-----------------------------------------------
Estimated Direct Labor Hours
12,000,000
500,000
Factory overhead rate = 24/direct labor hours
Machine hours -expressed in peso per hour
Estimated FOH
Estimated Machine Hours
12,000,000
400,000
Factory overhead rate = 30/machine hours
Let’s Check!
I. Questions:
1. What is factory overhead?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is/are the difference/s of variable, fixed and mixed factory overhead?
________________________________________________________
________________________________________________________
________________________________________________________
3. What is predetermined factory overhead rate?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
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1. The term overapplied overhead is not used with actual costing.

2. Underapplied overhead indicates inefficient operations.
3. The variable factory overhead that vary in direct proportional to the level of
production, if within the irrelevant range.
4. When overapplied overhead occurs only when actual cost is lesser than the
applied factory overhead.
5. Overhead applied is assigned directly to the cost of goods sold alone.
1. Fixed production overheads include all, except

a. Indirect materials and indirect labor
b. Depreciation of factory building
c. Maintenance of factory equipment
d. Cost of factory management and administration
2. A predetermined overhead rate CANNOT be used
a. if a company does not budget its overhead costs.
b. by a company that uses job-order costing.
c. in a multiple-product company.
d. by a highly automated company where labor is a minor part of product
cost.
3. Predetermined overhead rates are based on activity measured by
a. number of jobs. c. units of sales.
b. units of production. d. units of an input factor.
4. A credit to the Manufacturing Overhead control account represents the
a. actual cost of overhead incurred.
b. actual cost of overhead paid this period.
c. amount of overhead applied to production.
d. amount of indirect material and labor used during the period.
5. Machine hours used to set the predetermined overhead rate were 25,000,
actual hours were 24,000, and overhead applied was P 60,000. Budgeted
overhead for the year was
a. P 57,600. b. P 59,000. c. P 60,000. d. P 62,500.
6. Hoyt Company applies overhead at $4 per direct labor hour. In March Hoyt
incurred overhead of P 96,000. Underapplied overhead was P 4,000. How
many direct labor hours did Hoyt work?
a. P 25,000 b. P 24,000 c. P 23,000 d. P 22,000
Let’s Analyze!
Pronthons Corporation identified that the budgeted overhead is P 4,500,000 for the
company every year the company requiring 800,000 machine hours and 450,000 direct
labor hours. The company produce 600,000 units of the product and will use a total of
10,000,000 worth of manufacturing costs which consist of 40% material cost and the
rest is conversion cost the labor cost is twice the amount of the factory overhead
applied. Compute for the predetermined factory overhead rate on the following basis:
1. Material Cost
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2. Direct Labor Cost

3. Direct Labor Hours
4. Machine Hours
5. Units produce
In a Nutshell
Hauxtable charges manufacturing overhead to products by using predetermined
application rate, computed on the basis of machine hours. The following data
pertain to the current year:
Budgeted manufacturing overhead: P 480,000
Actual manufacturing overhead: P 440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
How much is the overhead applied to production totalled:
Q&A List

1.
2.
3.
4.
5.
Keywords index
Factory Overhead Factory Overhead Rate
Variable factory overhead Fixed factory overhead
Budgeted factory overhead Mixed factory overhead
lesson:
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Hill Company, Inc.

Note:
Big Picture in Focus: ULOe. Allocate the budgeted costs from service
department to producing department by computation using different
methods;
Metalanguage
enumerated below.
Departmental costs is the expenses related to a certain department that entrusted to

them to achieve their goals and objective.
Direct method is the method that allocates the costs of the manufacturing services
department directly to the production department of the company and to the product
itself
Step method is a method that allocates the cost of a service department to other
service departments in a sequential manner as well as to operating departments
Algebraic method is a method that the cost are allocated to each one of producing
and service departments and vice versa that’s why this is also known as reciprocal
method
Service department is part of the company that gives services to the whole company.
Producing department is a part of the company that is responsible of producing what

are to be produced and manufactured.
Essential Knowledge
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STEPS IN COMPUTING DEPARTMENTALIZED OVERHEAD RATE
Each company are divided intor segment that is also called departments or cost center
to which the expenditures are charge and allocated.
Reasons of allocating the cost to the departments:
a. To encourage operating departments to wisely use service department resources.

b. To provide operating departments with more complete cost data for making
decisions.
c. To help measure the profitability of operating departments.
d. To create incentive for service departments to operate efficiently.
e. To value inventory for external financial reporting purposes.
f. To include all overhead in the cost base when cost-plus pricing is used.
Selection of Allocation Bases
The allocation bases used should “drive” the cost being allocated. For example, when
allocating costs of the employee cafeteria, the number of meals served would be a good
choice for the allocation base.
There are 3 methods of allocating srvice department cost to producing departments
1. Direct Method
Service Departments Producing Departments
2. Step Method or Step Down Method, under this method the one of the service
department will give allocation to other service departments. The one who will be
allocated first is the one that renders the greatest service to the other departments.
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3. Algebraic Method or Reciprocal Method

Illustration
A B C D
Produced Units 50,000 70,000
Direct Labor Hours 100,000 90,000
Departmental Cost 150,000 250,000 1,200,000 1,150,000
Allocation of A - 10% 45% 45%
Allocation of B 5% - 55% 40%
Compute for the factory overhead rate per producing department using direct method,
step method and algebraic method. The basis of factory overhead rate is direct labor
hours.
Direct method
A B C D
A (150,000) - 75,000 75,000
B - (250,000) 144,737 105,263
-0- -0- 1,419,737 1,330,263
Divided by: Direct Labor Hours 100,000 90,000
14.20/DLH 14.78/DLH
Allocation of A
C = 150,000 * 45%/(45%+45%) = 75,000

D = 150,000 * 45%/(45%+45%) = 75,000
Allocation of B
C = 250,000 * 55%/(55%+40%) = 144,737
D = 250,000 * 40%/(55%+40%) = 105,263
Step method or Step Down method

A B C D
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A (162,500) - 81,250 81,250

B 12,500 (250,000) 137,500 100,000
-0- -0- 1,418,750 1,331,250
14.1875/DLH 14.79/DLH
Allocation of B
A = 250,000 * 5% = 12,500
C = 250,000 * 55% = 137,500
D = 250,000 * 40% = 100,000
Allocation of A
C = 162,500 * 45%/(45%+45%) = 81,250
D = 162,500 * 45%/(45%+45%) = 81,250
Algebraic Method or Reciprocal Method

A B C D
A (163,317) 16,332 73,493 73,492
B 13,317 (266,332) 146,482 106,533
-0- -0- 1,419,975 1,330,025
14.20/DLH 14.78/DLH
Equation: Allocation of A,
A = 150,000 + .05B B = 163,317 * 10% = 16,332
B = 250,000 + .10A C = 163,317 * 45% = 73,493
D = 163,317 * 45% = 73,492
Solve for A, Allocation of B,

A = 150,000 + (250,000 + .10A) A = 266,332 * 5% = 13,317
(.05) C = 266,332 * 55% = 146,482
A = 150,000 + 12,500 + .005A D = 266,332 * 40% = 106,533
A - .005A = 162,500
.995A =162,500
162,500
A = -------------
.995
A = 163,317
Solve for B,
B = 250,000 + .10A
B = 250,000 + .10(163,317)
B = 250,000 + 16,332
B = 266,332
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Let’s Check!
I. Questions:
1. What is service department?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is producing departments?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is/are the difference/s between direct method, step method and
algebraic method?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. Inter-service department activities are fully ignored by both the direct and
step method of cost allocation
2. Service department are those department that gives support to the producing
department.
3. Direct method is the allocation of departmental costs that do not provide
allocation to other service department.
4. Service department are sometimes called indeterminate costs centers while
production departments would be the final cost centers,
5. If there is no inter service department activities this means that the allocation
of the cost of the three methods will give identical results.
1. Which of the following is not a primary purpose given in the text for allocating
costs?
a. To provide information for economic decisions
b. To motivate managers and other employees
c. To measure income and assets for reporting to external parties
d. To foster cost awareness among managers to improve decisions
2. Consider the following statements about the step-down method of service
department cost allocation:
I. Under the step-down method, all service department costs are
eventually allocated to production departments.
II. The order in which service department costs are allocated is important.
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III. Once a service department's costs have been allocated, no costs are
re-circulated back to that department.
Which of the above statements is (are) correct?
a. I only. b. II only. c. I and II. d. I and III. d. I, II, and III.
3. The method of allocating service departmental costs that the service
department gives allocations to each other.
a. Direct Method c. Step Method
b. Least Square Method d. Algebraic Method
4. Consider the following statements about the direct method of service
department cost allocation:
I. Under the direct method, all service department costs are eventually
allocated to production departments.
II. The order in which service department costs are allocated to
production departments is important.
III. Once a service department's costs have been allocated, no costs are
re-circulated back to that department.
Which of the above statements is (are) correct?
A. I only. B. II only. C. I and II. D. I and III. E. I, II, and III.
5. The Milrose Clinic has two service departments (Human Resources and
Information Resources) and two "production" departments (In-patient
Treatment and Out-patient Treatment). The service departments service
each other, and studies have shown that Information Resources provides the
greater amount of service. Which of the following allocations would occur if
Milrose uses the direct method of cost allocation?
a. Information Resources cost would be allocated to In-patient Treatment.
b. Information Resources cost would be allocated to Human Resources
c. Human Resources cost would be allocated to Information Resources
d. In-patient Treatment cost would be allocated to Out-patient Treatment
e. Out-patient Treatment cost would be allocated to Information Resources
6. Billy Stone, Inc., budgets the following amounts for its Buildings & Grounds
and Computer Services Departments in servicing each other and the two
manufacturing divisions of Signs and Mailers:
Used By
Supplied By Building & Computer
Grounds Services Signs Mailers
Buildings & Grounds — 0.20 0.60 0.20
Computer Services 0.15 — 0.30 0.55
Actual cost data for each department are:

Fixed Variable
Buildings & Grounds P 50,000 P 90,000
Computer Services P 100,000 P 21,000
Total fixed costs allocated from Buildings & Grounds to the Signs
Department, using the preferred allocation basis, by the direct allocation
method are
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a. P 37,500. b. P 33,333. c. P 30,000. d. P 25,000.
The following information presented in the report of Mengilians Corporation.

Service Departments Producing
Department
ADMIN BACS Accounting Others
Department Costs P 180,000 90,000 190,000 900,000
Number of Employees 15 5 20 80
Number of PC’s 12 20 18 102
Allocation bases:
Business school administration costs (ADMIN): Number of employees
Business Administration computer services (BACS): Number of personal
computers.
7. Using direct method, how much cost will be allocated from Administration to
Accounting?
a. P 36,000 b. P 144,000 c. P 180,000 d. P 27,000
8. Using direct method, how much total cost will be allocated from ADMIN and
BACS combined to the Accounting Department?
a. P 52,500 b. P 135,000 c. P 270,000 d. P 49,500
9. Using step method, how much total cost will be allocated from ADMIN and
BACS combined to the Accounting Department?
a. P 35,250 b. P 49,072 c. P 18,000 d. P 26,333
The following information presented in the report of Mengilians Corporation.

Service Departments Producing
Department
ADMIN BACS Accounting Others
Department Costs P 180,000 90,000 190,000 900,000
Number of Employees 15 5 20 75
Number of PC’s 22 20 48 130
Allocation bases:
Business school administration costs (ADMIN): Number of employees
Business Administration computer services (BACS): Number of personal
computers.
10. Using algebraic method, how much total cost will be allocated from ADMIN
and BACS combined to the Accounting Department?
a. P 38,190 b. P 49,072 c. P 62,081 d. P 23,891
Let’s Analyze!
Wyoming State College has two service departments, the Library and Computing
Services, that assist the School of Business and the School of Health. Budgeted costs
of the Library and Computing Services are $800,000 and $1,800,000, respectively.
Usage of the service departments' output during the year is anticipated to be:
User of Service Library Computing Services
Library --- 10%
Computing Services 15% ---
School of Business 20% 60%
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School of Health 65% 30%

The equation to determine the total costs allocated from Library to School of Business
and School of Health using the reciprocal allocation method is
In a Nutshell
The Dollar Store has a Human Resources Department and a Janitorial Department that
provide service to three sales departments. The Human Resources Department cost is
allocated on the basis of employees, and the Janitorial Department cost is allocated on
the basis of space. The following information is available:
Human
Resources Janitorial Sales #1 Sales #2 Sales #3
Budgeted cost $45,000 $30,000
Space in square feet 4,000 1,000 20,000 30,000 50,000
Number of 5 10 15 45 30
employees
Using the direct method, the amount of Janitorial cost allocated to Sales #2 is:
Q&A List
1.
2.
3.
4.
5.
Keywords index
Direct Method Algebraic Method
Step Method Department Cost
Service department Producing department
lesson:
Hill Company, Inc.
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Note:
Big Picture in Focus: ULOf. Analyse accounting for labor concepts and
compute for the labor charge to work in process and factory overhead;
Metalanguage
enumerated below.
Wage plan is the plan or the scheme of providing salaries and wages to employees.
Labor overhead is labor that is reported to the factory overhead. This is labor other
than direct and indirect.
Essential Knowledge
ACCOUNTING FOR LABOR
Labor are any physical or mental effort provided by employee, works or human
resources in producing the product. They are paid with employee benefit such as
compensation, salaries and wages and this payment may be hourly, daily, weekly,
biweekly, monthly, yearly or piece work basis. Wages are paid to production workers
and salaries are paid to managerial and clerical services.
Factory payroll are classified into direct labor and indirect labor. Direct Labor are cost
that are directly related to the production cost, while indirect labor are those cost that
are not directly attributed to the product.
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The procedures of recording payroll cost.
 Recording the number of hours by total or by job, the quantity produced by

factory workers
 Determine and analyze the hours how time are used by the employee and how
this to be charge.
 Payroll cost are allocated to the job and factory overhead accounts
 Preparation of payroll including gross earning, total deductions and net earnings.
Wage Plan
The company uses different type of wages plans established by management and
approved by unions and comply with regulatory agencies.
Hourly-Rate Plan is a plan that each employee will be given a fix rate per hour and their
compensation will be computed by multiplying the number of hours and the fix rate per
hour. This does not provide incentive to employee during high productivity.
Piece-Rate Plan a plan that the company provide a fix rate per unit and of the earnings
are based on the output of the employee finished during the production. The earnings
shall be computed by the total output multiplied by the fixed rate per unit.
Modified Wage Plan a plan of the company to give a combines the features of Hourly-
Rate plan and Piece rate plan. The company will give fix amount of earnings to the
employee at the same time provides incentive for high level productivity or exceed the
quota.
Controlling Labor Cost
Maintaining a reliable record of labor is the responsibility of time-keeping department

and payroll department. Time-keeping department account the time spent by the
employee per job or in the organization and keeping the records from clock cards, time
ticket and production reports, while payroll department computes the compensation of
the employee and workers and they maintain records about payroll, employee earnings
and payroll summaries.
Accounting for Labor Cost
The labor costs is distributed to the appropriate accounts. The company should
segregate the overtime pay from regular employee time as the treatment of this pay is
different from each other. The overtime will earn an overtime premium, this premium will
be recorded as part of the factory overhead control account.
Example: Jose an employee that earn a regular rate of P 75.00 per hour for an 8-hour
duty. Jose partake 2 hours every day for 5 days in excess of the 8 hours and he will get
40% overtime premium form the excess time from the regular 8-hours duty. He will be
paid weekly
Computation:
Direct Labor (8 * P 75.00 * 5) = 3,000
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Direct Labor (2 * 5 * P 75.00) = 750

Factory Overhead Control (P 75.00 * 40% * 2 * 5) = 300
Total 4,050
Journal Entry:
Work in process 3,750
Factory Overhead Control 300
Payroll 4,050
Employee Payroll Taxes
SSS Contribution is a statutory deduction for an employee that is contributed to the
Social Security system for monthly pension at the time of retirement and death benefits
and loans (housing, calamity, educational, maternity, fraternity and other loans).
Pag-Ibig Contribution is also a statutory deduction that should be according to the

table of payment. Upon retirement the amount returned to the employee will be the
contribution of the employee and employer plus accumulated dividends
Regular Local Employee an OFW with employers subject to Pag-IBIG coverage

Compensation Employee share Employer share
1,500 and below 1% 2%
Above 1,500 2% 2%
Self-Employed and OFW with employer exempted from Pag-IBIG coverage

Compensation Share
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1,500 and below 1%

Above 1,500 2%
PhilHealth Contribution is for the benefit of the employee for hospitalization and
medical assistance.
Withholding Taxes
Income tax for the compensation of employee and as per TRAIN Law the income tax is
based on below table.
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Payroll Summary
For the period June 1-15, 2020
Jose Joanna Total

Gross Earnings 10,000.00 25,000.00 35,000.00
Less: Withholding and Deduction:
Income Taxes 0.00 3,333.25 3,333.25
SSS Premiums 800.00 800.00 1,600.00
Phil Health Contributions 600.00 750.00 1,350.00
Pag-Ibig Contributions 400.00 500.00 900.00
Total Deductions 1,800.00 5,383.25 7,183.25
Net Earnings 8,200.00 19,616.75 27,816.75
Classification of Labor
Direct labor – labor that are feasible to be measured and directly identified and charge
to the production of the products.
Indirect labor – labor that are feasible but cannot be charge and identify directly to the
production of the products. This will benefit the production, in general.
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Labor Overhead
Waiting time – is non-productive hours of employees and workers due to lack of work,
materials delay, machine breakdown and machine set-up the amount paid to the
employee due to this reason shall be recognized in the factory overhead accounts.
Example the company is setting up the machine for the new manufacturing process and
it take two hours to set up then, Jose is an employee who is affected by the set up and
paid 100 per hour for 8 hours a day. In his weekly payroll the journal entry is:
Work in Process (8 * 5 = 40 – 2 = 38 * 100) 3,800
Factory Overhead Control*** (2 * 100) 200
Payroll 4,000
***the two hour set up time
Make-up pay – the employee are paid based on the number of units produced are at a
“piecework” compensation plan. The employee is given a minimum wages but they can
earn if they can produced more. Thus, the minimum pay guarantees them salary. If the
employee has P 5,000 minimum wages and his rate is P 200 pesos per piece of output
and for the payroll period he finished 23 units. Thus, his pay based on the piecework is
P 4,600 but he will receive P 5,000 as the minimum wages, so the difference of P 400 is
known as the make-up pay and charge to the factory overhead.
The journal entry would be:
Factory Overhead Control 400
Payroll 5,000
And if the employee produce 29 units of output thus, the payment received by the
employee is 5,800 (29*200). Then in this situation there is no make-up pay.
The journal entry would be:
Payroll 5,800
And if the employee produce 25 units of output thus, the payment received by the
employee, since the minimum wage is equal to the actual pay, then no make-up pay is
given. The journal entry would be:
Payroll 5,000
Overtime premium – an amount paid in excess of the regular time of work.
Example: Princess is an evening shift that earns P 400 per day for 8-hour duty and 50%
is given for an overtime premium. She render 3 hours overtime in Monday, Wednesday
and Friday. She is paid weekly and work 5 days in a week. The journal entry and
computation is as follows:
Work in process (50 * 49) 2,450

Factory Overhead Control (50 * 50% * 9) 225
Payroll 2,675
400/8 = 50 per hour

8 * 5 = 40 hours and 3 * 3 = 9 overtime ; 40+9 = 49 total hours
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Shift premium – an extra pay for the employee, who work during evening or evening
shift or night shift. This shift or differential premium is charge to factory overhead.
Assume that Princess is an evening shift that earns P 400 per day for 8-hour duty and
P 100 differential pay. She is paid weekly and work 5 days in a week. The journal entry
and computation is as follows:
Work in Process (400 * 5) 2,000

Factory Overhead Control (100 * 5) 500
Employer’s payroll taxes – the share of the employer from the statutory deduction that
is remitted to the SSS premiums, PhilHealth contributions and Pag-Ibig contributions.
Let’s Check!
I. Questions:
1. What is labor overhead?

________________________________________________________
________________________________________________________
________________________________________________________
2. What are the different labor overhead reported to factory overhead?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. The total factory labor cost is composed of direct labor and indirect labor
2. Direct labor costs is recorded by a debit to work in process account.
3. Payroll deductions are based on the gross earnings of the employee (regular
earnings plus overtime)
4. The amount of income taxes withheld from employee gross pay is an
expense to the employer.
5. In ideal circumstances, each payroll check is delivered personally to the
employee who signs a receipt for it.
1. The following were the different wage plans commonly used by some
companies, except
a. Hourly-Rate Plan c. Work-Rate Plan
b. Piece-Rate Plan d. Modified Wage Plan
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2. “Take home pay” or net pay means

a. gross pay plus the amount paid for you by your employer.
b. gross pay less all deductions
c. the amount earned per hour times number of hours worked.
d. gross pay less only income tax withheld.
3. Fringe benefits of office personnel is usually charged to
a. Work in process account c. Selling expense
b. Administrative expenses d. Factory Overhead Control
4. To check the accuracy of hours worked, one would ordinarily compare clock
cards with:
a. employee earnings records c. job tickets
b. personnel records d. labor variance reports
5. An example of a fringe benefit is:
a. the employer portion of Payroll taxes
b. the straight rate for overtime hours
b. the direct labor wage rate
d. withheld taxes
6. An employee is paid a base rate of P 800 for 52 weeks. The employee is
entitled to a two-week vacation each year. Factory Overhead Control is
debited each week for accrued vacation pay of:
A. P 15.38 B. P 30.77 C. P 20 D. P 32
7. If an employee earns P 10 per hour and receives time-and-a-half for hours
worked in excess of 40 per week, in a week when 45 hours were worked the
overtime premium would be:
A P 25 B. P 50 C. P 10 D. P 5
Let’s Analyze!
Hopkins Company having total labor costs for Antonne Dey Vere of 347,500 which is
composed of 25% indirect labor, 10% selling and administrative expense and the rest is
direct labor as he has multiple work in the company.
Journalize the transaction and compute for the statutory deduction of Mr. Antonne Dey
Vere.
In a Nutshell
Red Company incurred the following costs related to the labor overheads during the
week for the three(3) employee:
I. Jessa, One of the factory workers works for 8 hours a day with a rate or P 235 per
hour and given 35% premium for the overtime. During the week (5 day) this
employee work for 43 hours.
II. Anna, Another employee of the factory work for the company with a minimum
compensation of P 2,500 based on the P 25 rate per piece of output. This employee
for the week he produce 90 pieces of output.
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III. Diana, and employee of the factory having a night shift work which the company
provides a night differential pay premium of 40% of her current rate which is P
290/hour. The employee had worked for 5 days a week.
Required:
1. The total cost presented as part of the factory overhead control account is
2. Based on the above information, How much is the total cost that should be part
of the Work in Process Account?
3. Prepare a One(1) Compound Journal entry to record the transactions a, b & c.
(3 points)
Q&A List
1.
2.
3.
4.
5.
Keywords index
Job order Costing Indirect Labor
Direct Labor Labor Overhead
Idle pay Make-up pay
Differential pay Overtime premium
Withholding taxes Statutory Deductions
Employer’s Payroll taxes Wage Plan
lesson:
Hill Company, Inc.
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Note:
Big Picture in Focus: ULOg. Compute for the product cost using process
costing system by preparing cost of production report.
Metalanguage
enumerated below.
Process Costing is a term used in to describe a method for collecting and assigning
manufacturing costs to the units produced and used for processing identical products.
Cost of Production Report a report that summarizes the production and cost activity
within a department for a reporting period. It is simply a formal summary of the four
steps performed to assign costs to units transferred out and units in ending work-in-
process (WIP) inventory.
Essential Knowledge
PROCESS COSTING
Costs incurred in this system are allocated during the period. The cost is summarized
on the cost of production report and one report per department for the period of time.
The cost is allocated to the work in process, end and units completed and transferred or
the finished goods. The cost per unit will increase as the product will approaching to the
end of the process as the cost per department is added.
The cost are computed as follow: if the cost of cutting department is P 25.00 per unit,
assembly department is P 20.00 per unit, furnishing department is P 35.00 per unit and
finishing department is P 24.00 per unit.
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Therefore, the total cost of the product s computed as follows:
Cutting Department P 25.00

Assembly Department 20.00
Furnishing Department 35.00
Finishing Department 24.00
Total Product Cost per unit 104.00
System Flow
UNITS TO ACCOUNT FOR UNITS ACCOUNTED FOR
Beginning, Work in Process(Units) Units Completed and Transferred

+ +
Unit Started in the Process or Units Units Completed and On Hand
Received from Previous Department
+ +
Increase in Units due to addition of Units in Process, End
materials
Product Flow
The production process will flow through the factory in the three different ways.
1. Sequential product flow – the process starts in the first department and every other
department must be finished first before other department started.
Department 1
Department 2
Departmetn 3
Department 4
2. Parallel product flow – in this process two departments will start at the same time
and meet or combined in one process.
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3. Selective product flow – a process that starts with one department and produce
more than 1 finished products.
Direct Materials
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Work in Process – Department 1 xxxxxx

Materials xxxxxx
Direct Labor

Payroll xxxxxx
Factory Overhead

Factory Overhead Applied xxxxxx
THE COSTS OF PRODUCTION REPORT
All costs are chargeable to a department are presented according to the cost elements.
The cost are determine by presenting this report as this is the analysis of the activity in
the department for the period. The following steps must be followed in presenting and
preparing cost of production report.
Step 1 – The quantity schedule
This presents the physical flow of the units into and out of departments and all the units
started in the department must be accounted for. This schedule is concern only with the
whole units and not considering the stage of completion.
Step 2 – Calculate Equivalent Units and Unit Costs
Not all units are not usually completed thus, there are still units that are still in process
and varying stage of completion at the end of the period. The equivalent unit of
production is equal to the restatement of the completed unit in the work in process, end
and the completed unit. The completed units are not a problem. The problem is the
restatement of incomplete units in terms of completed unit. The incomplete units is
accounted for as work in process inventory, end.
Step 3 – determine the costs to be accounted for (cost charge to the department)
The cost of the beginning work in process is the combination of direct materials, direct
labor and factory overhead that were assigned from the last period that must be
accounted for. If the department is not the first department of the process then the
department will receive units from previous department from there as the units receive
the cost from the previous department is also received accordingly. The department
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also incur costs from material, labor and factory overhead in its own processing. The
total of this costs must be determined and that composes the total cost of the product.
Step 4 – Account for all cost
The cost now is allocated to the completed and transferred, work in process, end and
lost if there is any. The cost for the completed units will be charge to the next
department, and the remaining cost will be allocated to either the work in process, end
and the lost units if there is any.
Methods of Application of Elements of Cost to Production
Even application – the introduction of the three elements of the product cost are evenly
introduce in the process. Thus, one equivalent production is computed.
Uneven application – the elements are introduce to any stage of the process hence,
many computation of equivalent production is computed as the elements are applied to
the production not equal.
Computation of Equivalent Production

1. Units received from preceding department 15,000 units
Units Completed and Transferred 12,000 units
Units in process, end (60% completed) 3,000 units
Materials are added 100% at the beginning of the process
Solution: Materials Labor and Overhead

Actual Work Done EP Work Done EP
Units received 15,000
Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 100% 3,000 60% 1,800
15,000 15,000 13,800
As you observe the materials are 100% work done in either units completed or units in
process. This is the result as the materials are added to the process at the beginning.
2. Same date as number but this time the materials are added at the end of the
process.

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 - - 60% 1,800
15,000 12,000 13,800
As you observe the materials are 100% work done in the units completed and no work
done in units in process. This is the result as the materials are added to the process at
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the end. The units in process are still in 60% means that it does not approach to the end
of the process, so the material is none.
3. Same date as number but this time the materials are added in the following stage
of the process.
20% completed = 50% of the materials

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 50% 1,500 60% 1,800
15,000 13,500 13,800
As you observe the materials are 100% work done in the units completed and 50% work
done in units in process. This is the result as the 50% of the materials are added to the
process when the units are 20% completed and the other 50% is added to the process
when the units are 80% completed. Therefore, 50% is the work done is applied to the
units in process.
4. Same date as number but this time the materials are added in the following stage
of the process.
At the beginning of the process = 50% of the materials
At the end of the process = the remaining materials

Units completed 12,000 100% 12,000 100% 12,000
Units in process 3,000 80% 2,400 60% 1,800
15,000 14,400 13,800
As you observe the materials 80% work done in units in process. This is the result when
the 50% of the materials are added at the beginning of the process, another 30% will be
added when the units are 50% completed and the remaining 20% are added at the end
of the process. Therefore, 80% work done of material applied to the units in process.
Cost of Production Report
The following data pertains to the production of Delmorales Corporation for the month of
July 2020.
Units Cutting Department Assembly Department
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Started 35,000 30,000

Completed & Transferred 30,000 28,000
In process, end 5,000 2,000
Stage of completion 50% 70%
Costs
Materials 420,000 140,000
Labor 390,000 135,240
Factory Overhead 260,000 114,660
The materials are added in the Cutting Department at the beginning of the process. In
the Assembly Department the materials is added at the end of the process.
Delmorales Corporation
For the month of July 2020
(Cutting Department)
Materials Conversion Cost

Quantity Schedule Actual WD EP WD EP
Unit Started 35,000
Units Completed 30,000 100% 30,000 100% 30,000
Units in Process, end 5,000 100% 5,000 50% 2,500
35,000 35,000 32,500
Cost Charge to the department:
Materials 420,000 12 (420,000/35,000)
Labor 390,000 12 (390,000/32,500)
Factory Overhead 260,000 8 (260,000/32,500)
Total added/Total cost to be accounted for 1,070,000 32
Cost accounted for as follows:
Completed and Transferred (30,000 * 32) 960,000
Units in process, end: Materials (5,000 * 12) 60,000
Conversion Cost (2,500 * 20) 50,000 110,000
Total cost as accounted for 1,070,000
(Assembly Department)
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Unit Started 30,000
Units Completed 28,000 100% 28,000 100% 28,000
Units in Process, end 2,000 - - 70% 1,400
30,000 28,000 29,400
Cost from preceding department 960,000 32.00
Materials 140,000 5.00 (140,000/28,000)
Labor 135,240 4.60 (135,240/29,400)
Factory Overhead 114,660 3.90 (114,660/29,400)
Total added 389,900 13.50
Total cost to be accounted for 1,349,900 45.50
Completed and Transferred (28,000 * 45.50) 1,274,000
Units in process, end:
Cost from preceding department (2,000 * 32) 64,000
Conversion Cost (1,400 * 8.5) 11,900 75,900
Journal Entries:
Work in process – Cutting Department 420,000
Work in process – Assembly Department 140,000
Materials 560,000
Issuance of materials

Payroll 525,240
Issuance of labor costs

Issuance of factory overhead

Work in Process – Cutting Department 960,000
Transfer of units from cutting to assembly department
Finished goods 1,274,000

Work in Process – Assembly Department 1,274,000
Transfer of units completed to the finished goods.
Cost of Goods Manufactured Statement
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Less: Work in Process, End (75,900+110,000) (185,900)
Cost of Goods Manufactured 1,274,000
The scrap and defective units are accounted the same as the accounting in job order
costing. The cost to rework is normally charge to factory overhead control account
rather than work in process because usually the defective unit is a result of internal
failure rather than customer’s specifications. The units are classified as lost in a process
costing is the same accounting of the spoiled under job order costing. During the quality
control inspection, when lost are discovered the lost are removed from the process as
this is discovered with imperfections.
NORMAL/ABNORMAL LOSS
Normal loss is an expected loss of the company; while abnormal loss is the loss beyond
the expected loss of the company. The cost of normal lost is charged to product cost as
they become part of the finished goods. While cost of the abnormal lost is recognized in
the factory overhead cost.
A. The cost of the normal lost units is charged to completed units and units in process
at the end, when normal lost are discovered
1. At the beginning
2. During the process and no quality control inspection is indicated
3. At the end of the process
B. The cost of the abnormal lost units is charged to loss account or factory overhead,
when abnormal lost are discovered
1. At the beginning
2. During the process with the point of discovery stated in the problem
3. At the end of the process
Suggestions of procedures in calculating equivalent units of production for normal lost

units
A1 and A2
a. Do not assign work done to the lost units; and
b. Adjust the unit cost from the preceding department due to decrease in number of
units.
c. The cost of the normal lost are automatically charge to both completed units and
units in process, end due to above procedures.
A3
a. Assign work done to the lost units; and
b. No need to adjust the unit cost from the preceding department despite of the lost
units.
c. The cost of the lost units are calculated and added to the cost of the completed
units.
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B1
a. Do not assign work done to the lost units; and
b. Cost from the preceding department will be charge to factory overhead.
B1
a. Assign work done to the lost units; and
b. The cost of the abnormal lost units is charge as an abnormal loss and debited to
the factory overhead control.
Computation of equivalent units of production for abnormal lost units is as follows:
a. The cost from the preceding department of the abnormal lost is charge as
abnormal loss, if the lost is discovered at the beginning of the process.
b. The cost of abnormal lost is charged to factory overhead control if the lost is
discovered at any other points in the process with or without inspection point.
Illustration
Vid Co. produce product that will undergo 2 stage of process: Melting department and
Forming Department data about the process of the Forming department last Month
June 2020.
Units
Received from Melting Department 60,000
Completed and transferred to warehouse 50,000
In process, End (75% completed) 6,000
Costs
From Melting Department 600,000
Added in Forming Department during the month
Materials 280,000
Materials are added at the beginning of the process
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1. Normal Lost discovered at the beginning of the process
Vid Co.
For the month of June 2020
(Forming Department)

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 - - - -
60,000 56,000 54,500
Materials 280,000 5.00 (280,000/56,000)
Labor 163,500 3.00 (163,500/54,500)
Factory Overhead 218,000 4.00 (218,000/54,500)
Total added 661,500 12.00
Total 22.00
Add: Adjustments .71428571
Cost from preceding department (6,000 * 10.71428571) 64,286
Materials (6,000 * 5.00) 30,000
Conversion Cost (4,500 * 7.00) 31,500 125,786
Adjustment for lost units is computed as follows:
a. Cost from preceding department

------------------------------------------- MINUS unit cost from preceding department
Total Units less lost Units
600,000 - 10.00 = 10.71428571 – 10.00 = .71428571

56,000
b. Unit lost * Unit cost from preceding department

Total Units less units lost
4,000*10 = 40,000 = .71428571
60,000 – 4,000 56,000
Journal entries:
Work in process – Forming Department 600,000

Work in Process – Melting Department 600,000
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Work in Process – Forming Department 661,500

Materials 280,000
Payroll 163,500
Finished Goods 1,135,714

Work in process – Forming Department 1,135,714
2. Normal Lost, discovered at the end of the process

Vid Co.

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 100% 4,000 100% 4,000
60,000 60,000 58,500
Materials 280,000 4.666666667
(280,000/60,000)
Labor 163,500 2.794871795
(163,500/58,500)
Factory Overhead 218,000 3.726495726
(218,000/54,500)
Total added 661,500 11.188034419

Completed and Transferred ((50,000+4,000) * 21.188034419) 1,144,154
Materials (6,000 * 5.00) 28,000
Conversion Cost (4,500 * 6.521367752) 29,346 117,346
Journal entries:

Materials 280,000
Payroll 163,500
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3. Normal Lost, discovered at the end of the process

Vid Co.

Unit Started 60,000
Units Completed 50,000 100% 50,000 100% 50,000
Lost Units – Normal 4,000 100% 4,000 100% 4,000
60,000 60,000 58,500
Materials 280,000 4.666666667
(280,000/60,000)
Labor 163,500 2.794871795
(163,500/58,500)
Factory Overhead 218,000 3.726495726
(218,000/54,500)
Total added 661,500 11.188034419

Factory Overhead Control (4,000 * 21.188034419) 84,752
Materials (6,000 * 5.00) 28,000
Conversion Cost (4,500 * 6.521367752) 29,346 117,346
Journal entries:

Materials 280,000
Payroll 163,500

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Let’s Check!
I. Questions:
1. What is process costing?
________________________________________________________
________________________________________________________
________________________________________________________
2. What is/are the difference/s from normal and abnormal lost?

________________________________________________________
________________________________________________________
________________________________________________________
3. What is cost of production report?

________________________________________________________
________________________________________________________
________________________________________________________
II. True or False

1. Equivalent units are computed to assign costs to partially completed units
2. Process costing is most appropriate when manufacturing large batches of
homogenous products.
3. A hybrid costing system would be appropriate for a company that
manufactures several varieties of jam.
4. All manufacturing costs other than direct materials are referred to as
conversion cost.
5. The quantity schedule is a report that give details on all manufacturing
quantities and costs, shows computation of EUP, and indicates cost
assignments to goods manufactured.
1. It is usually necessary to calculate equivalent unit production for
a. materials. c. materials and conversion costs.
b. conversion costs. d. materials, conversion costs, and overhead.
2. Process costing is used in companies that
a. engage in road and bridge construction.
b. produce sailboats made to customer specifications.
c. produce bricks for sale to the public.
d. construct houses according to customer plans.
3. Equivalent units of production are equal to the
a. units completed by a production department in the period.
b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the
period had been used to produce whole units.
d. identifiable units existing at the end of the period in a production
department.
4. Transferred-in cost represents the cost from
a. the last department only c. the last production cycle.
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b. all prior departments. d. the current period only

5. Process costing techniques should be used in assigning costs to products
a. if a product is manufactured on the basis of each order received.
b. when production is only partially completed during the accounting period.
c. if a product is composed of mass-produced homogeneous units.
d. whenever standard-costing techniques should not be used.
6. Kerry Company makes small metal containers. The company began
December with 250 containers in process that were 30 percent complete as
to material and 40 percent complete as to conversion costs. During the
month, 5,000 containers were started. At month end, 1,700 containers were
still in process (45 percent complete as to material and 80 percent complete
as to conversion costs). What are the equivalent units for conversion costs?
a. 3,450 b. 4,560 c. 4,610 d. 4,910
Reedish Company has the following information for November:

Units Started 30,000 units
Ending Work in Process Inventory
(10% complete as to conversion) 8,500 units
Beginning WIP Inventory
Costs:
Material $23,400
Conversion 50,607
Current Period Costs:
Material $31,500
Conversion 76,956
All material is added at the start of the process and all finished products are
transferred out.
7. Assume that weighted average process costing is used. What is the cost per
equivalent unit for material?
a. P .55 b. P 1.05 c. 1.31 d. P 1.83
The Holiday Company makes wreaths in two departments: Forming and

Decorating. Forming began the month with 500 wreaths in process that were
100 percent complete as to material and 40 percent complete as to
conversion. During the month, 6,500 wreaths were started. At month end,
Forming had 2,100 wreaths that were still in process that were 100 percent
complete as to material and 50 percent complete as to conversion. Assume
Forming uses the weighted average method of process costing. Costs in the
Forming Department are as follows:
Beginning Work in Process Costs:
Material $1,000
Conversion 1,500
Current Costs:
Material $3,200
Conversion 5,045
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The Decorating Department had 600 wreaths in process at the beginning of

the month that were 80 percent complete as to material and 90 percent
complete as to conversion. The department had 300 units in ending Work in
Process that were 50 percent complete as to material and 75 percent
complete as to conversion. Decorating uses the FIFO method of process
costing, and costs associated with Decorating are:
Beginning WIP Inventory:
Transferred In $1,170
Material 4,320
Conversion 6,210
Current Period:
Transferred In ?
Material $67,745
Conversion 95,820
8. How many units were transferred to Decorating during the month?
a. 600 b. 4,900 c. 5,950 d. 7,000
9. Mehta Company Co. uses a FIFO process costing system. The company had
5,000 units that were 60 percent complete as to conversion costs at the
beginning of the month. The company started 22,000 units this period and
had 7,000 units in ending Work in Process Inventory that were 35 percent
complete as to conversion costs. What are equivalent units for material, if
material is added at the beginning of the process?
a. 18,000 b. 22,000 c. 25,000 d. 27,000
10. Taylor Company uses a weighted average process costing system and
started 30,000 units this month. Taylor had 12,000 units that were 20 percent
complete as to conversion costs in beginning Work in Process Inventory and
3,000 units that were 40 percent complete as to conversion costs in ending
Work in Process Inventory. What are equivalent units for conversion costs?
a. 37,800 b. 40,200 c. 40,800 d. 42,000
Let’s Analyze!
The Dark Delectables Company has two processing departments, Cooking and
Packaging. Ingredients are placed into production at the beginning of the process in
Cooking, where they are formed into various shapes. When finished, they are
transferred into Packaging, where the candy is placed into heart and tuxedo boxes and
covered with foil. All material added in Packaging is considered as one material for
convenience. Since the boxes contain a variety of candies, they are considered partially
complete until filled with the appropriate assortment. The following information relates to
the cooking departments for February 2020:
Units started this period 19,500 Units

Units completed and transferred 19,000 Units
Ending WIP (60% complete as to conversion) 500 Units
a. Determine equivalent units of production
In a Nutshell
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Quingchiley Company manufactures a specialized product. Department 2 adds new

material to the units received from Department 1 at the end of process. A normal loss
occurs early in processing. Production and cost data for Department 2 for the month of
September are as follows:
Production record (in units):

Received from Department 1 24,000
Completed and transferred to finished goods 16,000
Lost in processing (normal) 2,000
In process, September 30-2/3 complete for process cost 6,000
Cost Record:
Cost from preceding department in September 8,000
Material cost for September 36,000
Conversion cost for September 49,000
Required: Prepare Cost of Production Report.
Q&A List
1.
2.
3.
4.
5.
Keywords index
Job order Costing Cost of production report
Equivalent unit of production
lesson:
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Hill Company, Inc.
Note:
a. Compute for the product cost using process costing system by

preparing cost of production report considering the effect of beginning
work in process inventory using FIFO and Average method of
computing the product under process costing system;
Big Picture in Focus: ULOa. Compute for the product cost using process
costing system by preparing cost of production report considering the effect
of beginning work in process inventory using FIFO and Average method of
computing the product under process costing system;
Metalanguage
enumerated below.
FIFO Method is the method of first in, first out consideration
Average Method is the method of computing cost and units in average format and not
consider the concept of which is first in and which is first out.
Essential Knowledge
METHODS OF COSTING IN PROCESS COSTING SYSTEM
FIFO METHOD
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The method that assumes the flow of production that the units first placed in the process
is presumed to be the completed first and those that are first completed are those first
transferred out.
Under this method, the work in process beginning will require a separate computation of
equivalent unit of production and the units started, completed and transferred is will also
have separate computations of equivalent units of production.
The equivalent unit of production of this period shall consist only of those that
completed this period and the completed last period is recorded last period.
Example if the product is 70% completed last period. The 70% is recorded as work
done last period so, how many percentage do we need to complete the product? Yes,
30% then the 30% completion is recorded as work done this period.
The unit cost are computed by current period product cost divided by the equivalent
units of current work done.
The cost of goods transferred out is computed as the sum of the following:
a. The cost in beginning work in process inventory
b. The current period cost to complete beginning inventory, computed by the
equivalent unit of production of the beginning work in process multiplied by
the current period unit cost
c. The cost to start and complete units, calculated by number of units multiplied
by the current cost computed
The cost of work in process ending is computed by multiplying the equivalent units of
production by the current product cost per unit.
AVERAGE METHOD
The method the merges all the departmental costs by elements of the beginning work in
process and cost incurred for the period an getting the average units cost by dividing
the total cost by elements tot equivalent units of production.
Under this method, the computation of equivalent units of production from the beginning
work in process is ignored and the total units completed and transferred are considered
to be 100% completed.
The equivalent unit of production of this period does not consider or ignore the work
done last month in computing equivalent unit of production.
The unit cost are computed as follows cost of the beginning work in process added to
the current period product cost divided by the sum of equivalent units of production of
the beginning work in process and the equivalent units of the current work done.
The cost of goods transferred out and the cost of work in process ending is computed
as follows: total units transferred multiply by the weighted average unit cost.
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The cost of work in process, ending is equal to the equivalent units of production
multiplied by the weighted average unit cost.
COMPUTATION OF EQUIVALENT UNITS OF PRODUCTION
The following information pertains to Brill John Corporation for its May 2020 production.
Units in process, beg, 60% completed 10,000
Units Started 40,000
Units Completed 35,000
Units in process, End, 90% completed 15,000
Solution: FIFO
Units in process, beg 10,000
Unit Started 40,000
Total 50,000
Units in Process, beg 10,000 - - 40% 4,000
Units Completed 25,000 100% 25,000 100% 25,000
50,000 40,000 42,500
Solution: Average
Unit Started 40,000
Total 50,000
Units Completed 35,000 100% 35,000 100% 35,000
50,000 50,000 48,500
Illustration for Preparation of Cost of Production Report

The following information pertains to Brill John Corporation for its June 2020 production.
Finishing department and the previous department is Molding Department
Units in process, beg, 60% completed 5,000
Units Started 30,000
Units Completed 30,000
Units in process, End, 90% completed 5,000
Costs Beg
Cost from preceding department 85,000 450,000
Materials 21,000 360,000
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Labor and Overhead(Conversion cost) 38,000 425,250
Solution for FIFO Method

Brill John Corporation
(Finishing Department)

Unit Started 30,000
Total 35,000
Units in Process, beg 5,000 - - 40% 2,000
Units Completed 25,000 100% 25,000 100% 25,000
35,000 30,000 31,500
Cost Charge to the department

In Process, beg 144,000
Cost from Preceding department 450,000 15.00
Cost added in the department
Materials 360,000 12.00
Conversion cost 425,250 13.50
Completed and transferred
From IP, beginning
Cost last month 144,000
Cost added this month:
Materials -
Conversion cost 27,000 27,000 171,000
This month completed and transferred 1,012,500 1,183,500
In Process, end
Cost from preceding department 75,000

Materials 60,000
Conversion Costs 60,750 195,750
Journal entries:
Work in process – Finishing Department 450,000
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Work in Process – Molding Department 450,000
Work in Process – Finishing Department 785,250

Materials 360,000
Payroll/Factory Overhead Applied 425,250

Solution for FIFO Average

Brill John Corporation
(Finishing Department)

Unit Started 30,000
Total 35,000
Units Completed 30,000 100% 30,000 100% 30,000
35,000 35,000 34,500
Cost Charge to the department

Cost from Preceding department (85,000+450,000) 535,000 15.28571429
Cost added in the department
Materials (21,000+360,000) 381,000 10.88571429
Conversion cost (38,000+425,250) 463,250 13.42753623

Completed and transferred (30,000*39.59896481) 1,187,969
In Process, end
Cost from preceding department (5,000*15.28571429) 76,429
Materials (5,000*10.88571429) 54,429
Conversion Costs (4,500*13.42753623) 60,423 191,281
Journal entries:
Work in process – Finishing Department 450,000

Work in Process – Molding Department 450,000
Work in Process – Finishing Department 785,250

Materials 360,000
Payroll/Factory Overhead Applied 425,250
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Let’s Check!
I. Questions:
1. What is FIFO costing?

________________________________________________________
________________________________________________________
________________________________________________________
2. What is Weighted Average costing?

________________________________________________________
________________________________________________________
________________________________________________________
3. What are distinguishing characteristics of FIFO and Weighted average

costing?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. To calculate weighted-average equivalent production you do not need to

know the number of units in the beginning inventory.
2. Equivalent production calculated using FIFO is higher than equivalent
production calculated using weighted average.
3. If a company has no inventories, the weighted-average approach and the
FIFO approach will result in the same income.
4. Although weighted average and FIFO may give different values for inventory,
the resulting income will always be the same.
5. When the beginning work in process inventory is zero, the peso amounts
assigned to units transferred out under FIFO and weighted-average method
is equal.
1. Which of the following is NOT relevant in determining weighted-average unit

cost in process costing?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
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d. Units completed.
2. Which company is most likely to use process costing?
a. A manufacturer of nuclear reactors. c. A construction contractor.
b. A cannery. d. A textbook publisher.
3. The numerator of weighted-average unit cost calculations is
a. current period cost.
b. cost of beginning inventory.
c. cost of goods sold.
d. current period cost plus cost of beginning inventory.
4. Which item is NOT relevant in determining FIFO unit cost?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
d. Units completed.
5. The FIFO method of calculating equivalent production and unit costs
a. is less likely to be accurate than the weighted-average method.
b. is more useful for control purposes than the weighted-average method.
c. cannot be used unless a company also uses standard costing.
d. eliminates the need to calculate separate equivalent-production
numbers for each element of manufacturing cost.
6. Falgoma Corporation completed 10,000 units, had beginning inventory of
2,500 units 40% complete, and ending inventory of 1,000 units 20%
complete. Weighted-average EUP was
a. 9,200. b. 10,000. c. 10,200. d. 11,000.
7. Dwendwey Company had a beginning inventory of 3,000 units 35%
complete, and an ending inventory of 2,500 units 20% complete. If 17,500
units were completed and transferred, under FIFO costing what is the EUP is
conversion cost
a. 17,500. b. 16,950. c. 16,050. d. 15,050.
8. Cheating Corporation has a weighted-average EUP of conversion cost
30,000 units. Beginning inventory was 4,000 units 40% complete; ending
inventory was 5,000 units 60% complete. The number of units completed for
the period is
a. 27,000. b. 29,000. c. 30,000. d. 31,000.
9. Susasa Inc. had P 3,000 cost of beginning work in process and incurred an
additional for the period P 28,500 during the period. If weighted-average EUP
was 10,000 units, unit cost would be
a. P 2.85. b. P 3.15. c. P 9.50. d. P 3.00.
10. Woods Run has a weighted-average EUP of 49,750 units. Beginning
inventory of 4,500 units was 60% complete; the ending inventory of 4,800
units was 60% complete. Conversion costs in beginning inventory were P
1,960; conversion costs added during the period were P 40,825. Conversion
costs per unit are
a. P 0.82. b. P 0.86. c. P 0.70. d. P 1.00.
Let’s Analyze!
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Senikel Company uses FIFO process costing. Data are as follows:
Beginning inventory 40% complete 5,000 units

Units completed during period 100,000 units
Ending inventory 70% complete 9,000 units
The cost of the beginning inventory was P 2,900 and current period production costs
were P 166,880.
Required:
a. Compute equivalent production.
b. Compute the unit cost.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished goods
inventory.
In a Nutshell
The following data are available for 2020 for Hunter Y Field, Inc., which uses weighted-
average process costing.
Beginning inventory (30% complete) 4,000 units

Units transferred in during 2020 56,000 units
Units completed during 2020 55,000 units
Ending inventory (60% complete) 4,500 units
Lost-normal (discovered at the end) 500 units
Costs of inventory at beginning of 2020
Cost from preceding department P 6,600
Materials 12,000
Conversion Cost 6,750
Production costs incurred during 2020
Cost from preceding department P 660,000
Materials 405,000
Conversion Cost 458,850
Required:
a. Prepare Cost of Production Report for 2020.
b. Compute equivalent production fo-33r 2020.
b. Compute the unit cost for 2020 to the nearest cent.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished goods.
Q&A List
1.
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2.
3.
4.
5.
Keywords index
FIFO Costing Weighted Average Costing
Work in Process Beginning
lesson:
Hill Company, Inc.
Note:
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Course Schedules
Activities Date Where to Submit

Big Picture Week 1-2 ULOa: Let’s June 6, 2020 E Mail/Schoology
Check Activities
Analyze Activities
Big Picture Week 1-2 ULOb: Let’s June 6, 2020 E Mail/Schoology
Check Activities
Analyze Activities
Big Picture Week 1-2 ULOb: In the June 6, 2020 E Mail/Schoology
Nutshell Activities
Big Picture Week 1-2 ULOc: Let’s June 6, 2020 E Mail/Schoology
Check Activities
Big Picture Week 1-2 ULOd: Let’s June 6, 2020 E Mail/Schoology
Check Activities
Big Picture Week 1-2 ULOe: Let’s June 6, 2020 E Mail/Schoology
Check Activities
Big Picture Week 1-2 ULOf: Let’s June 9, 2020 E Mail/Schoology
Check Activities
Analyze Activities
Big Picture Week 1-2 ULOf: In the June 9, 2020 E Mail/Schoology
Nutshell Activities
Big Picture Week 1-2 ULOg: Let’s June 9, 2020 E Mail/Schoology
Check Activities
Analyze Activities
Big Picture Week 1-2 ULOg: In the June 9, 2020 E Mail/Schoology
Nutshell Activities
PRE-LIM EXAMINATION June 11, 2020 Schoology
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOa: In the June 18, 2020 E Mail/Schoology
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Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOb: In the June 20, 2020 E Mail/Schoology
Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOc: In the June 20, 2020 E Mail/Schoology
Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOd: In the June 20, 2020 E Mail/Schoology
Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOe: In the June 20, 2020 E Mail/Schoology
Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOf: In the June 23, 2020 E Mail/Schoology
Nutshell Activities
Check Activities
Analyze Activities
Big Picture Week 3-4 ULOg: In the June 23, 2020 E Mail/Schoology
Nutshell Activities
MIDTERM EXAMINATION June 26, 2020 Schoology
Check Activities
Big Picture Week 5-6 ULOa: Let’s July 4, 2020 E Mail/Schoology
Analyze Activities
Big Picture Week 5-6 ULOa: In the July 7, 2020 E Mail/Schoology
Nutshell Activities
FINAL EXAMINATION July 9-10, 2020 Onsite
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Online Code of Conduct
1) All teachers/Course Facilitators and students are expected to abide by an

honor code of conduct, and thus everyone and all are exhorted to exercise self-
management and self-regulation.
2) Faculty members are guided by utmost professional conduct as learning

facilitators in holding OBD and DED conduct. Any breach and violation shall be
dealt with properly under existing guidelines, specifically on social media
conduct (OPM 21.15) and personnel discipline (OPM 21.11).
3) All students are likewise guided by professional conduct as learners in

attending OBD or DED courses. Any breach and violation shall be dealt with
properly under existing guidelines, specifically in Section 7 (Student Discipline)
in the Student Handbook.
4) Professional conduct refers to the embodiment and exercise of the University’s

Core Values, specifically in the adherence to intellectual honesty and integrity;
academic excellence by giving due diligence in virtual class participation in all
lectures and activities, as well as fidelity in doing and submitting performance
tasks and assignments; personal discipline in complying with all deadlines; and
observance of data privacy.
5) Plagiarism is a serious intellectual crime and shall be dealt with accordingly.

The University shall institute monitoring mechanisms online to detect and
penalize plagiarism.
6) All borrowed materials uploaded by the teachers/Course Facilitators shall be

properly acknowledged and cited; the teachers/Course Facilitators shall be
professionally and personally responsible for all the materials uploaded in the
online classes or published in SIM/SDL manuals.
7) Teachers/Course Facilitators shall devote time to handle OBD or DED courses

and shall honestly exercise due assessment of student performance.
8) Teachers/Course Facilitators shall never engage in quarrels with students

online. While contentions intellectual discussions are allowed, the
teachers/Course Facilitators shall take the higher ground in facilitating and
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moderating these discussions. Foul, lewd, vulgar and discriminatory languages

are absolutely prohibited.
9) Students shall independently and honestly take examinations and do

assignments, unless collaboration is clearly required or permitted. Students
shall not resort to dishonesty to improve the result of their assessments (e.g.
examinations, assignments).
10) Students shall not allow anyone else to access their personal LMS account.
Students shall not post or share their answers, assignment or examinations to
others to further academic fraudulence online.
11) By handling OBD or DED courses, teachers/Course Facilitators agree and

abide by all the provisions of the Online Code of Conduct, as well as all the
requirements and protocols in handling online courses.
12) By enrolling in OBD or DED courses, students agree and abide by all the
provisions of the Online Code of Conduct, as well as all the requirements and
protocols in handling online courses.
Monitoring of OBD and DED
(1) The Deans, Asst. Deans, Discipline Chairs and Program Heads shall be
responsible in monitoring the conduct of their respective OBD classes through
the Blackboard LMS. The LMS monitoring protocols shall be followed, i.e.
monitoring of the conduct of Teacher Activities (Views and Posts) with generated
utilization graphs and data. Individual faculty PDF utilization reports shall be
generated and consolidated by program and by college.
(2) The Academic Affairs and Academic Planning & Services shall monitor the
conduct of LMS sessions. The Academic Vice Presidents and the Deans shall
collaborate to conduct virtual CETA by randomly joining LMS classes to check
and review online the status and interaction of the faculty and the students.
(3) For DED, the Deans and Program Heads shall come up with monitoring
instruments, taking into consideration how the programs go about the conduct of
DED classes. Consolidated reports shall be submitted to Academic Affairs for
endorsement to the Chief Operating Officer.
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Course prepared by:
JOHNVIR P. TORREON, CPA

Name of Course Facilitator/Faculty
Course reviewed by:
MARY CRIS L. LUZADA, CPA, MSA

Program Head – Accountancy
Approved by:
GINA FE G. ISRAEL, EdD

Dean of College
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UNIVERSITY OF MINDANAO

Department of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)

Course/Subject: ACC 123 – Cost Accounting and Control

Name of Teacher: Johnvir P. Torreon, CPA

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

Course Outline: ACC 123 – Cost Accounting and Control

Course Coordination: Johnvir P. Torreon, CPA

Areas of Concern Details

This 3-unit course self-instructional manual is

The expected number of hours will be 54

Submission of assessment tasks shall be on the

If the assessment task is done in real time

Since this course is included in the licensure

To ensure honesty and authenticity, all

Please note that academic dishonesty such as

The score for an assessment item submitted

Assessment tasks will be returned to you one (1)

You should request in writing addressed to the

You should request in writing addressed to the

If disapproved by the course coordinator, you

You shall be evaluated based on the following:

Assessment methods Weights

Submission of the final grades shall follow the

The course coordinator shall create Group Chat

You can also meet the course coordinator in

Dr. Gina Fe G. Israel, EdD

Mary Cris L. Luzada, CPA, MSA

For Accounting Technology:

Maria Teresa A. Ozoa, CPA, MBA

Students with special needs shall communicate

Clarissa R. Donayre, MSLS

Rochen D. Yntig, RGC

Mersun Faith A. Delco, RPm

Alfred Joshua M. Navarro

Course Information – see/download course syllabus posted in

a. Distinguish the characteristics of financial, managerial and cost

f.4. Variable Cost, Fixed Cost and Mixed Cost;

Big Picture in Focus: ULOa. Distinguish the characteristics of

Management Accounting is the practice of identifying, measuring, analyzing,

Cost Accounting is a systematic set of procedures for recording and reporting

Timeliness is most important quality of information that should be provided to the

Cost accounting provides information to both financial accounting and managerial

Table a.1 The summary of differences of financial, managerial and cost

3. Financial accounting reports are general-purpose reports while managerial

Big Picture in Focus: ULOb. Distinguish the differences of merchandising

Merchandising concern business is one of the most common types of businesses we

Finished Goods Inventory refers to the number of manufactured products

Merchandising Business Operation

Figure b.1 Computation of cost of goods sold for merchandising company.

Merchandise Inventory, Beginning P/ 75,000

Figure b.2 Cost flow of merchandising concern business.

Manufacturing Concern Business

The production process and the merchandising

The distinctions of manufacturing and

b. Manufacturing process convert purchase items to make products while in

Figure b.3 Cost flow for Manufacturing Company

Indirect Labor 61,250