Module DBE Cost Acctg Second Sem 2020 2021 1

Course Code CAC 202
Course Title
COST ACCOUNTING AND CONTROL
COC COST
ACCOUNTING
AND
CONTROL
Learning Module
1
STUDENT
Name:
Student Number:
Program:
Section:
Home Address:
Email Address:
Contact Number:
STUDENT
PROFESSOR
Name:
Student
Name: Number:
ELLEN C. ALMORO
Program:Department:
Academic BS ACCOUNTANCY
BUSINESS EDUCATION
Section:
Consultation Schedule:
Home Address:
Email Address: ellenclementealmoro@gmail.com
Email Address:
Contact Number:09175261093
Contact Number:
Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

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GENERAL INSTRUCTIONS:
 Follow the sequence of the topics as they are presented;
 Provide your answer sheets and write neatly and legibly the requirements;
 Output for enrichment and assessment activities shall be submitted on the set schedule;
 Read the recommended reference books and linkages for more information and presentation;
 Learning is primarily student’s responsibility;
 CCC BSA and BSAIS students shall maintain honesty and integrity at all times;
 Contents of this material are owned by City College of Calamba. You may not produce,
distribute, publish, display, modify, create derivative works, transmit, nor may you distribute any
part of this or offer it for sale, or use to construct any kind of database.

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Preliminaries
I. Course Code CAC 102
II. Course Title COST ACCOUNTING AND CONTROL
III. Module Number 1 (Prelim)
IV. Module Title Cost Accounting and Job Order Costing
V. Overview of the Module The introduction to cost accounting, cost accounting cycle and job order costing
will be discussed.
VI. Module Outcomes Cost of goods manufactured and sold statement, job order cost sheets and
related journal entries.
Lesson 1: Introduction to Cost Accounting and Cost Concepts
Lesson Objectives: At the end of the lesson the students are expected to:
1. Differentiate manufacturing activity from service and merchandising
2. Identify the product costs – direct materials, direct labor and overhead
3. Present in the financial statement the manufacturing business inventories –
Raw materials, work in process and finished goods
Getting Started
There are three types of business activities namely: service, merchandising and manufacturing.
The accounting cycle used service and merchandising activity during Financial Accounting and Reporting.
This lesson will introduce cost accounting for manufacturing activity.
Discussion and Application
Cost Accounting is defined as 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. It is also a
method of managerial accounting which aims to capture the total production cost of a business by
measuring variable costs of each production phase as well as fixed cost.

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Merchandising versus Manufacturing Operations
A merchandising company buys a product that is ready for resale when it is purchased. The
product will not be changed to make it salable except for special packaging or display. It has only
merchandise inventory in the financial statements.
A manufacturing company buys raw materials and processes it in to finished goods to be sold.
In processing, direct labor and overhead are incurred. It has three kinds of inventories namely – raw
materials, work in process and finished goods.
Manufacturing Inventories:
1. Materials inventory – upon purchased of raw materials, the costs are charged to materials
inventory account. Any unused raw materials at the end of the period will be the ending balance
of the said account.
2. Work in process – when the materials are processed, labor and overhead are incurred. Hence,
the materials, labor and overhead will be charged to work in process account. Any unfinished
work at the end of the period will be the ending balance of the said account.
3. Finished Goods - when the goods are completely processed, the cost incurred to complete the
goods are charged to finished goods account. Any unsold goods at the end of the period will be
the ending balance of the said account.
Product Costs/Manufacturing Costs
1. Direct Materials are the basic ingredients that are transformed into finished products through the
use of labor and factory overhead in the production process. Direct materials are those that can
be traced to the finished product. All manufactured products are made from basic direct materials.
The basic materials for bread is flour, wood for tables and chairs, and meat for hamburger.
2. Direct Labor represents the amount paid as wages to those working directly on the product. The
direct labor for table and chair is the wages paid to carpenter, for bread the bakers’ wages, and
chef’s wages for cooked meals/products.
3. Factory Overhead costs are other manufacturing costs that cannot be classified as direct material
or direct labor. Examples are indirect materials, indirect labor, depreciation of plant building and
machineries, repairs and maintenance.
Prime Costs equals direct materials and direct labor
Conversion costs equals direct labor and factory overhead

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Non Manufacturing Costs/Period Costs
1. Marketing or selling expenses include all costs necessary to secure customer orders and get the
finished product or service into the hands of the customer. Examples are advertising, shipping,
sales travel, sales commissions, sales salaries and expenses associated with finished goods
warehouse.
2. Administrative or general expenses include all executive, organizational and clerical expenses that
cannot logically be included under either production or marketing. Examples are executive
compensation, general accounting, secretarial and similar expenses having to do with the overall
administration of the organization as a whole.
Costs classified as to Variability
1. Fixed costs remain constant in total, irrespective of the volume of production. Fixed costs are not
related to activity within the relevant range. Fixed costs are assignable to department based on
different allocation methods. Examples are salaries of production executives, depreciation of
equipment computed on a straight line method, periodic rent payments and insurance. Cost per
unit decreases as volume increases, and increases as volume decreases.
2. Variable costs are items of cost which vary directly, in total, in relation to volume of production.
Examples are: direct materials, direct labor, royalties and commission of salesmen. Cost per unit
remains constant as volume changes within a relevant range.
3. Mixed cost are items with fixed and variable components. Mixed costs vary with the level of
production, though not in direct relation to it, probably because part of the cost is fixed while the
rest is variable.
Summary of the Lesson
 Cost Accounting is defined as 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. It is also a method of managerial accounting which aims to capture the total
production cost of a business by measuring variable costs of each production phase as well as
fixed cost.
 A manufacturing company buys raw materials and processes it in to finished goods to be sold.
In processing, direct labor and overhead are incurred.
 Manufacturing business has three inventories: raw materials, work in process and finished goods
 Product costs are direct materials, direct labor, overhead
 Non manufacturing costs are marketing and administrative expense
 Costs related to variability are fixed, variable and mixed costs

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Enrichment Activity
Problem 1 The financial statements of Big Mom Company included these items:
Marketing Costs P160,000

Direct Labor costs 245,000
Administrative costs 145,000
Direct Materials used 285,000
Fixed Factory Overhead 175,000
Variable Factory Overhead 155,000
Required: Compute for the following:

1. Prime Costs
2. Conversion costs
3. Product cost
4. Period Cost
Assessment Activity
Problem 1 Presented below is a list of costs and expenses usually incurred by a manufacturer of
furniture in its factory.
1. Metal used in manufacturing of tables
2. Insurance on factory machines
3. Leather used in manufacturing furniture
4. Wages paid to machine operators
5. Depreciation of factory machinery
6. Salaries of factory supervisors
7. Wood used in manufacturing furniture
8. Sand paper, bolds and nails
9. Property taxes on factory building
10. Rent of factory building
Required: Classify the above items into the following categories (a) direct materials (b) direct labor and
(c) manufacturing overhead

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Problem 2 Classify the following items if manufacturing or non manufacturing costs:
1. Wood used in book cases

2. Machine depreciation
3. Fire insurance on factory equipment
4. Wiring used in radios
5. Indirect materials
6. Sales commissions
7. Bottles used to package liquid
8. Gasoline for delivery truck
9. Salary of president
10. Wages of factory operators
References
1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc (Text Book).
2. Rante (2013) Cost Accounting 2013 Edition : Manila: Millenium Books Inc.
3. Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise & Co. Inc.

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Lesson 2: COST ACCOUNTING CYCLE
1. Prepare journal entries for manufacturing and non manufacturing transactions
2. Prepare cost of goods manufactured and sold statement
3. Prepare income statement and statement of financial position of a manufacturing business
Getting Started
After having the knowledge of cost accounting and different kinds of inventories and costs
classifications, we now have the transactions incurred by a manufacturing firm. These transactions are
to be recorded and summarized for financial statement preparations.
The manufacturing company buys raw materials to be charged to Materials account. For these
materials to be processed Direct Labor and Factory overhead will be incurred. Thus, these three cost
elements will be charged to work in process account. After the goods are completely processed, the cost
of goods to manufactured will be transferred to Finished Goods. When the goods have been sold, the
cost of goods sold will be charged to the Cost of Goods Sold account, which is deducted from Sales to get
the gross profit.
Manufacturing Cost:
Raw  Raw Materials Finished Cost of Goods
Materials  Direct Labor Goods Sold
 Factory Overhead
Work-in Process
Figure 1: Cost of Accounting Cycle—Flow of Manufacturing Cost

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Illustration:
The records of XYZ Manufacturing Company show the following accounts and its balances on March 1 of
the current year:
Materials P 10,000
Work in Process 50,000
Finished Goods 75,000
The following are the transactions incurred in March:
a) Materials purchased on account P50,000.

b) Materials issued to production P 45,000.
c) Indirect materials issued to production P2,000.
d) Payroll data:
Total Payroll P100,000
Deductions: SSS 2,000
Philhealth 1,000
Pagibig 1,000
Witholding tax 10,000
e) Payroll is allocated as follows: 50% Direct Labor, 2% indirect labor, 30% marketing,
18% administrative
f) Employers contribution for SSS P2,000, Philhealth P1,000 and Pagibig P1,000.
The employer’s contribution is allocated 50% factory overhead, 30% marketing, 20%
administrative
g) Factory overhead expenses: Depreciation P10,000, Insurance P5,000,
Accrued factory overhead expenses, P26,000
h) Factory overhead is applied at 100% of direct labor.
i) Cost of goods completed during the period P155,000.
j) Cost of goods sold during the month P 200,000.
k) The goods were sold on account with 100% mark up on cost.
l) The under or over applied overhead is closed to cost of goods sold.
Required: (a) Journal entries to record the foregoing transactions (b) statement of cost of goods
manufactured and sold statement (c) Schedule of Factory Overhead (d) gross profit

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(a) Journal entries

Accounts Subsidiary Debit Credit
Ledger
For FOC
(a) Materials 50,000
Accounts Payable 50,000
(b) Work in Process 45,000
Materials 45,000
(c) Factory Overhead Control (Actual FO) 2,000
Materials 2,000
Indirect Materials 2,000
(d) Payroll 100,000
SSS Contribution Payable 2,000
Philhealth Contribution Payable 1,000
Pagibig Contribution Payable 1,000
Witholding Tax Payable 10,000
Accrued Payroll 86,000

Cash 86,000
(e) Work in Process 50,000
Factory Overhead Control 2,000
Marketing Expense Control 30,000
Administrative Expense Control 18,000
Payroll 100,000
Indirect Labor 2,000
(f) Factory Overhead Control 2,000
Administrative Expense Control 800
SSS Contribution Expense 1,000
Philhealth Contribution Expense 500
Pagibig Contribution Expense
500
(g) Factory Overhead Control 41,000

Accumulated Depreciation 10,000
Prepaid Insurance 5,000
Factory Overhead Payables 26,000
Depreciation Expense 10,000
Insurance Expense 5,000
Other Factory Expenses 26,000
(h) Work in Process 50,000
Factory Overhead Applied 50,000
(i) Finished Goods 155,000
Work in process 155,000

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(j) Cost of Goods Sold 200,000

(k) Accounts Receivable 400,000
Sales 400,000
(l) Factory Overhead Applied 50,000
Cost of Goods Sold 3,000
FO Applied P 50,000
FO Control (Actual) 47,000
*Over applied FO P 3,000
*Deduction from Cost of goods sold
Note: If there is no given factory over applied, the total factory overhead control amount will be
charged to work in process.
Below are the posting to T accounts for selected accounts for the cost of goods manufactured and sold
statement.
Materials Work in Process Finished Goods
March 1 10,000 (b) 45,000 March 1 50,000 (i) 155,000 March 1 75,000 (j)200,000
(a) 50,000 (c) 2,000 (b) 45,000 (i) 155,000
March 31 13,000 (e) 50,000 March 31 30,000
(h) 50,000
March 31 40,000
Factory Overhead Control Factory Overhead Applied Cost of Goods Sold

(c) IM 2,000 (l) 47,000 (l) 50,000 (h) 50,000 (j) 200,000 (l) 3,000
(e)IL 2,000 March 31 197,000
(f)Con 2,000
(g) 41,000
47,000
SSS Philhealth Pagibig Total

FOC (50%) 1,000 500 500 2,000
MEC (30%) 600 300 300 1,200
AEC (20%) 400 200 200 800
2,000 1,000 1,000 4,000

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(b)
XYZ Manufacturing Company
Cost of Goods Manufactured and Sold
For the month ended, March 31, 202A
Materials Inventory, March 1, 202A P10,000

Purchases 50,000
Materials available for use P60,000
Less: Indirect Materials P2,000
Materials Inventory, March 31, 202A 13,000 15,000
Materials used P 45,000
Direct Labor 50,000
Total Manufacturing Cost P145,000
Add: Work in Process Inventory, March 1, 202A 50,000
Total cost put into process P195,000
Less: Work in Process Inventory, March 31, 202A 40,000
Total Cost of Goods manufactured P155,000
Add: Finished Goods Inventory, March 1, 202A 75,000
Total Goods available for sale P230,000
Less: Finished Goods Inventory, March 31, 202A 30,000
Cost of Goods Sold P200,000
Less: Over applied Factory Overhead 3,000
Net Cost of Goods Sold P197,000
(c )
Schedule of Factory Overhead Expenses
Depreciation Expense P10,000

Pagibig Contribution Expense 500
Total P47,000
Over Applied Factory Overhead P 3,000
(d) Sales P400,000

Less: Cost of Goods Sold (net) 197,000

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Gross Profit P203,000
 The manufacturing company buys raw materials to be charged to Materials account. For these materials
to be processed Direct Labor and Factory overhead will be incurred. Thus, these three cost elements will
be charged to work in process account. After the goods are completely processed, the cost of goods to
manufactured will be transferred to Finished Goods. When the goods have been sold, the cost of goods
sold will be charged to the Cost of Goods Sold account, which is deducted from Sales to get the gross
profit.

Manufacturing Cost:
Raw  Raw Materials Finished Cost of Goods
Materials  Direct Labor Goods Sold
 Factory Overhead
Work-in Process
Cost Accounting Cycle – Flow of Manufacturing Cost
Enrichment Activities
Problem 1 The following pertain to manufacturing operations:

a) Materials were issued as follows: Direct materials, P24,500; indirect materials P4,500.
b) Payroll of P44,000 paid was recorded. Withheld are the following:Income tax P7,000, SSS contribution
P3,000, Phil health contribution P2,000 and Pagibig contribution P1,000.
c) The payroll consisted of P30,000 direct labor, P6,000 indirect labor, P5,000 marketing and P3,000
administrative.
d) Accrued miscellaneous factory expenses P7,500.
e) Factory overhead applied to production P22,932.
f) Cost of production completed during the month P60,000.
g) Materials purchased totaled P50,000.
h) Goods costing P20,000 were sold on account to customers at a sales price of P30,000.
Required: Prepare the necessary journal entries.

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Problem 2 Mina Manufacturing Company purchases of materials during March totaled P110,000 and cost of
goods sold for March was P345,000. Factory overhead was 50% of direct labor cost. Other information pertaining
to Mat’s inventories and production for March is as follows:
Inventories: March 1 March 31

Finished Goods P102,000 P105,000
Work in process 40,000 36,000
Materials 20,000 26,000
Required: Prepare the cost of goods manufactured and sold statement.
Assessment
A manufacturing company shows the following amounts in the cost of goods sold statement and the statement
of comprehensive income for September of the current.
Inventories: September 1 September 30

Finished Goods P80,000
Work in process P 87,000
Materials 100,000 150,000
Materials used 590,000
Cost of goods sold 750,000
Cost of goods manufactured 800,000
Total manufacturing costs 790,000
Required: 1. Work in process, September 1

2. Finished goods, September 30
3. Amount of materials purchased in September
References

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Lesson 3: JOB ORDER COSTING
1. Define Job Order Costing
2. Enumerate the characteristics of job order costing
3. Prepare journal entries for manufacturing for job order costing
4. Prepare cost of goods manufactured and sold statement
5. Prepare job order cost sheet
Getting Started
After having the knowledge and skills in recording transactions and preparing the related financial
statements involving the cost accounting cycle, we now to keep tract of these data using the job order
costing system.
In job order costing, the cost of each order produced for a given customer or the cost of each lot to
be placed in stock is recorded on a job order cost sheet, sometimes called simply a cost sheet. The cost
sheets are subsidiary records which are controlled by the work in process account. Although several jobs
or orders may be going through a factory at the same time, each cost sheet is designed to collect the cost
of materials, labor and factory overhead (usually estimated rather the actual factory overhead cost) to a
specific job. Each cost sheet is assigned a job number, which is placed on each material requisition and
labor time ticket in connection with the job. These forms for materials and labor are totaled daily or
weekly by job number, for summary journal entries, and the details are entered on the cost sheets.

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Sample of Job Order Cost Sheet
https://www.google.com/search?q=job+order+cost+sheet+format&tbm=isch&source=iu&ictx=1&fir=BtZ
Zht1sjOMP3M%252ClzLvkM4ylnsh6M%252C_&vet=1&usg=AI4_-
kSbRbeLvhMfij1Yhsily4BJZrWTtQ&sa=X&ved=2ahUKEwjbytj14ePuAhVozYsBHXP-
BH0Q9QF6BAgPEAE&biw=1396&bih=686#imgrc=BtZZht1sjOMP3M

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Sample of Material Requisition Form
https://www.google.com/search?q=material+requisition+form+example&tbm=isch&ved=2ahUKEwjg2-n-
4ePuAhUHvZQKHawTAIoQ2-
cCegQIABAA&oq=material+requi&gs_lcp=CgNpbWcQARgEMgIIADICCAAyAggAMgIIADICCAAyAggAMgIIA
DICCAAyAggAMgIIADoECAAQQzoFCAAQsQM6CAgAELEDEIMBOgcIABCxAxBDUJi4AljwqQNg8ecDaABwA
HgCgAHiBYgBqBmSAQ4xOC4yLjAuMS4wLjEuMZgBAKABAaoBC2d3cy13aXotaW1nsAEAwAEB&sclient=im
g&ei=bSYmYKDxFof60gSsp4DQCA&bih=686&biw=1396#imgrc=X1fo3doPLq5CKM

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https://www.google.com/search?q=labor+ticket&tbm=isch&ved=2ahUKEwjrlPLi4uPuAhUXyosBHXKgCzg
Q2-
cCegQIABAA&oq=labor+tic&gs_lcp=CgNpbWcQARgAMgQIABAYOgIIADoGCAAQBRAeOgYIABAIEB46BAgA
EEM6BQgAELEDOggIABCxAxCDAToHCAAQsQMQQzoKCAAQsQMQgwEQQzoECAAQHlCT5QtYmbMMYN_
JDGgBcAB4AIABgwGIAY8akgEEMzguNZgBAKABAaoBC2d3cy13aXotaW1nsAEAwAEB&sclient=img&ei=Pyc
mYKv5DZeUr7wP8sCuwAM&bih=686&biw=1396#imgrc=oOrlzuhmN7qb-M

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Illustration:
The records of XYZ Manufacturing Company show the following accounts and its balances on March 1 of
the current year:
Finished Goods P 75,000
Materials 10,000
Work in Process ( Jobs 101 and 102) 50,000
Cost of Jobs in process as of March 1:
Job 101 Job 102
Materials P15,000 P7,000
Labor 10,000 4,000
Factory Overhead Applied 10,000 4,000
Total P35,000 P15,000
The following are the transactions incurred in March:
a) Materials purchased on account P50,000.
b) Materials issued to production P 45,000 for Job 101 P10,000, Job 102 P20,000 and Job 103 P15,000.
c) Indirect materials issued to production P2,000.
d) Payroll data:
Total Payroll P100,000
Deductions: SSS 2,000
Philhealth 1,000
Pagibig 1,000
Witholding tax 10,000
e) Payroll is allocated as follows: 50% Direct Labor for Job 101 P15,000, Job 102, P20,000 and Job 103
P15,000, 2% indirect labor, 30% marketing and 18% administrative
f) Employers contribution for SSS P2,000, Philhealth P1,000 and Pagibig P1,000.
The employer’s contribution is allocated 50% factory overhead, 30% marketing, 20%
administrative
g) Factory overhead expenses: Depreciation P10,000, Insurance P5,000,
Accrued factory overhead expenses, P26,000

h)Factory overhead is applied at 100% of direct labor.
i) Jobs 101 and 102 were completed during the period.

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j) Job 101 was sold during the month on account with 100% mark up on cost.
k) The under or over applied overhead is closed to cost of goods sold.
Required: (a) Journal entries to record the foregoing transactions (b) statement of cost of goods
manufactured and sold statement (c) Job Order Cost Sheets (d) Reconcile Work in Process March 31 to
the job order cost for the unfinished job.
(a) Journal entries

Accounts Subsidiary Debit Credit
Ledger
For Work in
Process/
Factory
Overhead
Control
(a) Materials 50,000
Accounts Payable 50,000
(b) Work in Process 45,000
Materials 45,000
Job 101 10,000
102 20,000
103 15,000
(c) Factory Overhead Control 2,000
Materials 2,000
(d) Payroll 100,000
Witholding Tax Payable 10,000
Cash 86,000
(e) Work in Process 50,000
Administrative Expense Control 18,000
Payroll 100,000
Job Order 101 15,000
102 20,000
103 15,000
(f) Factory Overhead Control 2,000
Administrative Expense Control 800

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500
Pagibig Contribution Expense
(g) Factory Overhead Control 41,000
Accumulated Depreciation 10,000
Prepaid Insurance 5,000
Factory Overhead Payables 26,000
Depreciation Expense 10,000
(h) Work in Process 50,000
Job Order 101 15,000
102 20,000
103 15,000
(i) Finished Goods 150,000
Work in process 150,000
Job Order 101 (75,000)
102 (75,000)
(j) Cost of Goods Sold 75,000
Accounts Receivable 150,000

Sales 150,000
(k) Factory Overhead Applied 50,000
Cost of Goods Sold 3,000
FO Applied P 50,000
FO Control (Actual) 47,000
*Over applied FO P 3,000
*Deduction from Cost of goods sold
Note: If there is no given factory over applied, the total factory overhead control amount will be
charged to work in process.

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b)
Cost of Goods Manufactured and Sold
Materials Inventory, March 1, 202A P10,000

Purchases 50,000
Materials available for use P60,000
Less: Indirect Materials P2,000
Materials Inventory, March 31, 202A 13,000 15,000
Materials used P 45,000
Direct Labor 50,000
Total Manufacturing Cost P145,000
Add: Work in Process Inventory, March 1, 202A 50,000
Total cost put into process P195,000
Less: Work in Process Inventory, March 31, 202A 45,000
Total Cost of Goods manufactured P150,000
Add: Finished Goods Inventory, March 1, 202A 75,000
Total Goods available for sale P225,000
Less: Finished Goods Inventory, March 31, 202A 150,000
Cost of Goods Sold P 75,000
Less: Over applied Factory Overhead 3,000
Net Cost of Goods Sold P 72,000
1) Job Order Cost Sheets
JOB ORDER 101
Materials:
March 1 P15,000
Requisitions 10,000
Total P25,000
Labor:
March 1 P10,000
Payroll 15,000
Total 25,000
Overhead:
March 1 P10,000
Applied 15,000
Total 25,000
Total Product Costs P 75,000

100% Mark up 75,000
Sales Price P150,000

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JOB ORDER 102
Materials:
March 1 P 7,000
Requisitions 20,000
Total P27,000
Labor:
March 1 P 4,000
Payroll 20,000
Total 24,000
Overhead:
March 1 P 4,000
Applied 20,000
Total 24,000
Total Product Costs P 75,000

100% Mark up 75,000
Sales Price P150,000
JOB ORDER 103
Materials:
Requisitions P 15,000
Total P15,000
Labor:
Payroll 15,000
Total 15,000
Overhead:
Applied 15,000
Total 15,000
Product Costs P 45,000

Status: Still in process, March 31

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d) Work in Process, March 31
Work in Process
March 1 Balance 50,000 Cost of Goods Manufactured (i) 150,000
Materials (b) 45,000
Labor (e) 50,000
Overhead
Applied (h) 50,000
31 Balance 45,000
The Work in process balance on March 31 shown is P45,000 which is also the total updated cost of
Job Order 103 in the cost sheet. The amount is equal to the one included in the cost of goods
manufactured and sold statement.
 In job order costing, the cost of each order produced for a given customer or the cost of each lot
to be placed in stock is recorded on a job order cost sheet, sometimes called simply a cost sheet.
 The cost sheets are subsidiary records which are controlled by the work in process account.
Although several jobs or orders may be going through a factory at the same time, each cost sheet
is designed to collect the cost of materials, labor and factory overhead (usually estimated rather
the actual factory overhead cost) to a specific job.
 Each cost sheet is assigned a job number, which is placed on each material requisition and labor
time ticket in connection with the job. These forms for materials and labor are totaled daily or
weekly by job number, for summary journal entries, and the details are entered on the cost sheets
Enrichment Activity
Problem 1 The DBE Company had the following inventories on August 1 of the current year.
Finished Goods P50,000

Work in Process 37,000
Materials 44,000
The work in process account controls two jobs:

Job 401 Job 402
Labor 5,000 6,000
Factory Overhead 4,000 4,800
P15,000 P22,000

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The following information pertains to August operations:
1) Materials purchased on account P56,000.

2) Materials issued for production, P50,000. Of this amount P6,000 was for indirect materials; the
difference was distributed: P11,000 to Job 401; P14,000 to Job 402 and P19,000 to Job 403.
3) Materials returned to the warehouse from the factory, P1,600 of which P600 was for indirect
materials, the balance from Job 403.
4) Materials returned to vendors, P2,000.
5) Payroll after deducting P6,050 for withholding taxes P3,200 for SSS contributions, P750 for
Philhealth contributions, and P2,400 for Pagibig was P65,600. The payroll due the employees was
paid during the month.
6) The payroll was distributed as follows: P20,800 to Job 401, P25,000 to Job 402, P21,000 to Job
403 and the balance represents indirect labor.
7) The share of the employer for payroll was recorded – P4,000 for SSS contributions, P750 for
Philhealth and P2,400 for Pagibig Funds
8) Factory overhead, other than any previously mentioned, amounted to P30,000. Included in this
figure were P6,000 for depreciation of factory building and equipment, P1,900 for expired
insurance on the factory. The remaining overhead was unpaid at the end of August.
9) Factory overhead was applied to production at the rate of 80% of direct labor.
10) Jobs 401 and 402 were completed and transferred to finished goods warehouse.
11) Job 401 was shipped and billed at a gross profit of 40% of the cost.
12) Cash collections from accounts receivable during August were P70,000.
Required: 1. Journal entries to record the above transactions.

2. Job Order cost sheets
3. Cost of goods sold statement
Assessment
The following inventory data relate to BSA Corporation.

____Inventories_____
Beginning Ending
Finished Goods P90,000 P110,000
Work in process 80,000 70,000
Direct Materials 95,000 90,000
Revenues and costs for the period
Sales P900,000
Cost of goods available for sale 775,000
Total manufacturing costs 675,000
Factory Overhead 175,000
Direct Materials used 205,000
Required: Compute the following for the year:
1. Direct materials purchased
2. Direct labor costs incurred
3. Cost of goods sold
4. Gross Profit

26
Suggested Links:
1.https://www.google.com/search?q=job+order+cost+sheet+format&tbm=isch&source=iu&ictx=1&fir=Bt
ZZht1sjOMP3M%252ClzLvkM4ylnsh6M%252C_&vet=1&usg=AI4_-
kSbRbeLvhMfij1Yhsily4BJZrWTtQ&sa=X&ved=2ahUKEwjbytj14ePuAhVozYsBHXP-
BH0Q9QF6BAgPEAE&biw=1396&bih=686#imgrc=BtZZht1sjOMP3M
2.https://www.google.com/search?q=material+requisition+form+example&tbm=isch&ved=2ahUKEwjg2-
n-4ePuAhUHvZQKHawTAIoQ2-
cCegQIABAA&oq=material+requi&gs_lcp=CgNpbWcQARgEMgIIADICCAAyAggAMgIIADICCAAyAggAMgIIA
DICCAAyAggAMgIIADoECAAQQzoFCAAQsQM6CAgAELEDEIMBOgcIABCxAxBDUJi4AljwqQNg8ecDaABwA
HgCgAHiBYgBqBmSAQ4xOC4yLjAuMS4wLjEuMZgBAKABAaoBC2d3cy13aXotaW1nsAEAwAEB&sclient=im
g&ei=bSYmYKDxFof60gSsp4DQCA&bih=686&biw=1396#imgrc=X1fo3doPLq5CKM
3.https://www.google.com/search?q=labor+ticket&tbm=isch&ved=2ahUKEwjrlPLi4uPuAhUXyosBHXKgCz
gQ2-
cCegQIABAA&oq=labor+tic&gs_lcp=CgNpbWcQARgAMgQIABAYOgIIADoGCAAQBRAeOgYIABAIEB46BAgA
EEM6BQgAELEDOggIABCxAxCDAToHCAAQsQMQQzoKCAAQsQMQgwEQQzoECAAQHlCT5QtYmbMMYN_
JDGgBcAB4AIABgwGIAY8akgEEMzguNZgBAKABAaoBC2d3cy13aXotaW1nsAEAwAEB&sclient=img&ei=Pyc
mYKv5DZeUr7wP8sCuwAM&bih=686&biw=1396#imgrc=oOrlzuhmN7qb-M
References:

27
Preliminaries
III. Module Number 2 (Midterm)
IV. Module Title Process Costing Part 1
V. Overview of the Module Process Costing topics will cover different losses incurred by first and succeeding
departments. The quantity schedule, the costs charged to the department and the
costs accounted for shall be the major parts of the production reports and its
accompanying supporting schedules.
VI. Module Outcomes Cost of production report and related journal entries
Lesson Number 1
Lesson Title Process Costing Characteristics and Involving No Lost Units
Lesson Objectives: At the end of the lesson, the student is expected to:
1. Define process costing
2. Enumerate the characteristics of process costing
3. Prepare necessary journal entries of the flow of cost in different process departments
with out lost units
4. Prepare the cost of production report for each department involving no lost units.
Getting Started (Optional)
During the prelim period, we had completed the cost accounting cycle and had applied job
order costing in the cycle. We prepared job order cost sheets for different job orders that are
identifiable to a particular customer. These cost sheet summarize the direct material, direct labor and
overhead for each particular job. Examples are products that may be customed made or may be
distinguished from each other such as dress, furniture, equipment, machineries and the like .
This midterm period, we will take up process costing for homogenous products such as sugar, oil,
cereals, milk and the like. This time we will prepare cost of report for each department which will show
the cost of materials, labor and overhead per department.

28
Process Costing
Definition: Process Costing is defined as a branch of operation costing, that determines the cost of a
product at each stage, i.e. process of production. It is an accounting method which is adopted by the
factories or industries where the standardized identical product is produced, as well as it passes through
multiple processes for being transformed into the final product.
In simple words, process costing is a cost accounting technique, in which the costs incurred during
production are charged to processes and averaged over the total units manufactured. For this
purpose, process accounts are opened in the books of accounts, for each process and all the expenses
relating to the process for the period is charged to the respective process account.
Hence, it ascertains the total cost and unit cost of a process, for all the processes carried
out in industry. Further, the average cost represents the cost per unit, wherein the total
cost is divided by the total number of outputs produced during the period to arrive at the
cost per unit. The cost per unit can be calculated using First in First Out Method
(FIFO), Average Method and Weighted average Method.
(https://businessjargons.com/process-costing.html)
Process Costing Involving No lost Units
The first discussion will consider no lost units during the production process for both the first
and succeeding departments. Please refer to pages 290 -295 of the text book.
Format illustration and procedures for the first department
The cost of production has three major parts namely:
1. Quantity schedule which summarizes the units started, units completed and units
still in process at the end of the period.
2. Cost charged to the department enumerates the cost of materials, labor and
overhead incurred by the department with the unit cost.
3. Cost accounted for as follows enumerates the cost of units completed and
transferred to the succeeding department and cost of ending work in process
inventory.

29
Below is the format (terms) to be written first and the peso values are to be written in the
money columns as they are computed.
ABC Manufacturing Company
Department A
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units started in process XXXX
Units completed and transferred to Department B XXXX
Units still in process XXXX XXXX
Cost charged to the department: Cost Unit Cost

Materials PXXX P xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost to be accounted for PXXX P xx.xx
Cost accounted for as follows:

Completed and transferred to Department B PXXX
Work in process ending inventory:
Materials PXXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX
Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:
Work in Process – Department A XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX
Work in Process – Department B XXXX


30
Format illustration and procedures for the second/succeeding department
In the succeeding department, instead of unit started it will be units received from the
preceding department and the first cost that is charged to the department is the cost from the
preceding department
All the steps and computation done with the first deparment will be the same with the
succeeding department.
Department B
Quantity Schedule
Units received from Department A XXXX
Units completed and transferred to Finished Goods XXXX

Cost received from Department A P XXX P xx.xx
Cost added in the department
Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx

Completed and transferred to Finished Goods PXXX
Cost from Department A P XXX
Materials XXX
Labor XXX
Overhead XXX XXX
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx

31
Journal entries:
*Work in Process – Department B XXXX


Materials XXXX
**Finished Goods XXXX

*Recorded in department A
**If already the last department
Steps to be done
1. Have the format of the cost of production report written. Mastery of the format of the
cost of production report is a must.
2. Start completing the quantity schedule considering the data given.
3. Write the amount of the costs (materials, labor and overhead) incurred by the
department in the cost charged to the department
4. Compute the equivalent production based on the quantity schedule data
5. Compute for the unit cost to be forwarded in the unit cost column to arrive at the total
unit costs
6. Considering the unit costs and equivalent production computation, the cost accounted
for as follows will be already completed.
7. Based on the figures obtained in the cost accounted for as follows, formulate the journal
entries.
STEPS TO BE DONE WILL ALWAYS BE FOLLOWED IN SOLVING PROBLEMS.

32
Illustration:
ABM Company uses two departments to produce a product. The following data were taken
from the book for the month of January, 202A.
Department 1 Department 2
Units:
Started 60,000
Completed and transferred 40,000 30,000
In process, end 20,000 10,000
Stage of completion 75% 80%
Costs:
Labor 330,000 190,000
Overhead 220,000 114,000
Department 1 – all materials added at the beginning of the process.

Department 2 – 50% of the materials are added at the beginning of the process, remaining 50%
at the end of the process.
Required: Cost of production report for Department 1 and 2 and related journal entries.
ABM Manufacturing Company

Department 1
For the month ended, January 31, 202A
Quantity Schedule
Units started in process 60,000
Units completed and transferred to Department 2 40,000
Units still in process 20,000 60,000

Materials P480,000 P 8.00
Labor 330,000 6.00
Overhead 220,000 4.00
Total cost to be accounted for P1,030,000 P18.00

Completed and transferred to Department B (40,000 X P18.00) P720,000
Materials (20,000 x P8.00) P160,000
Labor (20,000 x 75% X P6.00) 90,000
Overhead (20,000 x 75% x P4.00) 60,000 310,000
Total cost accounted for P1,030,000

33
Materials 60,000 (100% complete)

Labor and overhead 40,000 (100% complete) + 20,000 (75% complete) = 55,000
Unit Cost:
Materials P480,000/60,000 = P8.00
Labor P330,000/55,000 = P6.00
Overhead P220,000/55,000 = P4.00
Journal entries:
Work in Process – Department 1 1,030,000

Materials 480,000
Payroll (direct labor) 330,000
Work in Process – Department 2 720,000

On January 31, 202A the Work in Process – Department A will have a balance of P310,000
Work in Process – Department 1___

1,030,000 720,000
Balance 310,000*
*Same balance in the Work in Process inventory in the cost of production report.

34
ABM Manufacturing Company

Department 2
For the month ended, January 31, 202A
Quantity Schedule
Units received from Department 1 40,000
Units completed and transferred to Finished Goods 30,000

Cost received from Department 1 P 720,000 P 18.00
Materials P 245,000 P 7.00
Labor 190,000 5.00
Overhead 114,000 3.00
Total cost added P 549,000 P15.00
Total cost to be accounted for P1,269,000 P33.00

Completed and transferred to Finished Goods (30,000 x P33.00) P 990,000
Cost from Department 1 (10,000 x P18.00) P 180,000
Materials (10,000 x 50% x P7.00) 35,000
Labor (10,000 x 80% x P5.00) 40,000
Overhead (10,000 x 80% x P3.00) 24,000 279,000
Total cost accounted for P1,269,000
Materials 30,000 (100% complete) + 10,000 (50% complete) = 35,000
Labor and overhead 30,000 (100% complete) + 10,000 (80% complete) = 38,000
Unit Cost:
Materials P245,000/35,000 = P7.00
Labor P190,000/38,000 = P5.00
Overhead P114,000/38,000 = P3.00
Journal entries:

Materials 245,000


35
On January 31, 202A the Work in Process – Department 1will have a balance of P279,000
Work in Process – Department 2__

720,0000 990,000
549,000
Balance 279,000*
*Same balance in the Work in Process inventory in the cost of production report.
 Process costing accumulates cost incurred by department. Products which are

homogenous usually adopt process costing.
 Cost of production report is prepared for each department on a regular basis.
 Journal entries are prepared at the end of each cut off period.
 It is very ideal that there may be no lost units during production
Problem 1
Metal Fabrication Corporation manufactures their product in two departments. For the month
of June of the current year, Cutting Department, the first department started to process 4,600 units.
Materials amounting to P11,500 all were placed at the beginning of the process. Direct labor paid was
P6,450 and overhead applied was P7,525. The department completed and transferred 4,000 units to the
Assembly Department, the last department. Units still in process were 50
Assembly Department completed and transferred to finished goods store room 3,400 units. No
materials were added by the department. Direct labor paid was P8,460 and overhead applied was P6,768.
At the end of the month, units still in process were 60% converted.
Instructions: Prepare cost of production reports and necessary journal entries for Cutting department for
the month of June of the current year.

36
Assessment
Problem 1
Metal Fabrication Corporation manufactures their product in two departments. For the month
of June of the current year, Cutting Department, the first department started to process 4,600 units.
Materials amounting to P11,500 all were placed at the beginning of the process. Direct labor paid was
P6,450 and overhead applied was P7,525. The department completed and transferred 4,000 units to the
Assembly Department, the last department.
Assembly Department completed and transferred to finished goods store room 3,400 units. No
materials were added by the department. Direct labor paid was P8,460 and overhead applied was P6,768.
At the end of the month, units still in process were 60% converted.
Instructions: Prepare cost of production reports and necessary journal entries for Assembly department
for the month of June of the current year.
Suggested Links (Optional)
1. https://businessjargons.com/process-costing.html
2. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/distinguish-between-job-
order-costing-and-process-costing/
References

37
Lesson Number 2
Lesson Title Process Costing involving normal lost units
1. Prepare necessary journal entries of the flow of cost in different process departments
with normal lost units
2. Prepare the cost of production report for each department involving lost units
normal
Discussion of Content and Application
Normal or unavoidable loss is produced under efficient operating conditions and is uncontrollable.
Normally lost units are expected during production. The lost may be incurred in the different
stages of production – at the beginning or at the end of the process.
Illustration of process costing involving lost units incurred at the beginning of the process
When the lost is incurred at the beginning of the process, the cost from the preceding department
will be adjusted. Thus, the lost will be distributed to all the units received from the preceding department
by increase in its unit cost.
Since the lost units will no longer be processed, it will not be included in the equivalent
production computation.

Department B
Quantity Schedule
Units still in process XXXX
Units lost in process XXXX XXXX

Adjusted cost from the preceding department P xx.xx

Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx

38

Adjusted cost from preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Materials XXXX
Labor XXXX
Overhead XXXX
Adjusted cost from the preceding department Pxx.xx
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:


Materials XXXX


39
Illustration of process costing involving lost units incurred at the end of the process
When the lost is incurred at the end of the process, the cost incurred by the lost units will be
added to the cost completed and transferred to the next department.
Since these lost units occurred after processing, they will be included in the computation of
equivalent production.

Department B
Quantity Schedule


Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx

Cost from the preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Materials XXXX
Labor XXXX
Overhead XXXX
Adjusted cost from the preceding department Pxx.xx

40
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:


Materials XXXX

Illustration:
Cleaner Corporation applies process costing in three departments namely: Blending, Testing
and Terminal Departments.
For the month of March of the current year the following information from Testing Department
were obtained:
1. Received 45,000 units from Blending department at a total cost of P77,400.
2. 40,000 units were transferred to Terminal department.
3. 3,000 units were still in process which were 1/3 completed.
4. Direct labor cost paid was P37,310.00.
5. Factory Overhead applied was P 32,800.00
6. All units lost were considered normal.
Required: Prepare cost of production report and related entries if (a) units were lost at the beginning of
the process (b) units were lost at the end of the process. Carry unit cost upto five decimal places. Round
figures to the nearest peso.

41
(a) Units were lost at the beginning of the process
Cleaner Corporation
Testing Department
Quantity Schedule
Units received from Blending Department 45,000
Units completed and transferred to Terminal Department 40,000
Units still in process (1/3 labor and overhead) 3,000
Units lost in process (all normal) 2,000 45,000

Cost received from Department A P 77,400 P 1.72
Adjusted cost from the preceding department

P77,400 / (45,000 – 2000) P 1.80
Labor P 37,310 P 0.91
Overhead 32,800 0.80
Total cost added P70,110 P 1.71
Total cost to be accounted for P147,510 P 3.51

Completed and transferred to Terminal Department (40,000 x P 3.51) P140,400
Adjusted cost from preceding department( P1.80 x 3,000) P 5,400
Labor (3,000 x 1/3 x P0.91) 910
Overhead (3,000 x 1/3 x P0.80) 800 7,110
Total cost accounted for P147,510
Labor and overhead 40,000 (100% complete) + 3,000 (1/3 complete) = 41,000
Unit Cost:
Labor P37,310/41,000 = P0.91
Overhead P32,800/41,000 = P0.80
Journal entries:
Work in Process – Testing Department 77,400

Work in Process – Blending Department 77,400


42

Work in Process – Terminal Department 140,400

(b) Units were lost at the end of the process
Cleaner Corporation
Testing Department
Quantity Schedule
Units received from Blending Department 45,000
Units completed and transferred to Terminal Department 40,000
Units still in process (1/3 labor and overhead) 3,000
Units lost in process (all normal) 2,000 45,000

Cost received from Department A P 77,400 P 1.72

Labor P 37,310 P0.86767
Overhead 32,800 0.76279
Total cost added P70,110 P 1.63046
Total cost to be accounted for P147,510 P 3.35046

Completed and transferred to Terminal Department
(40,000 x P 3.35046) + (2,000 x P3.35046) P140,479*
Cost from preceding department( P1.72 x 3,000) P 5,400
Labor (3,000 x 1/3 x P0.86767) 868
Overhead (3,000 x 1/3 x P0.76279) 763 7,031
*Difference due to rounding off
Labor and overhead
40,000 (100% complete) + 3,000 (1/3 complete) + 2,000 (100% complete) = 43,0000
Unit Cost:
Labor P37,310/43,000 = P0.86767
Overhead P32,800/43,000 = P0.76279

43
Journal entries:

Work in Process – Blending Department 77,400

Work in Process – Terminal Department 140,479

 When the lost is incurred at the beginning of the process, the cost from the preceding
department will be adjusted. Thus, the lost will be distributed to all the units received
from the preceding department by increase in its unit cost.
Since the lost units will no longer be processed, it will not be included in the
equivalent production computation.
 When the lost is incurred at the end of the process, the cost incurred by the lost units
will be added to the cost completed and transferred to the next department.
Since these lost units occurred after processing, they will be included in the
computation of equivalent production.
Problem 1 Chem Phil Corporation produces a product in tow departments – Mixing and Packaging. For
the month of August of the current year, Packaging Department received from Mixing Department 50,000
units (costing P225,000) out of which 40,000 units were completed and transferred to finished goods
warehouse. Packaging department completed only 60% of the 5,000 units still in process.
During the month, Packaging department added 100% of the materials (costing P135,000)
at the beginning of the process. The department also incurred labor and overhead amounting to P103,200
and P206,400 respectively.
Required: Cost of production reports and necessary journal entries for Packaging Department assuming
lost was discovered (a) at the beginning of the process

44
Assessment
Problem 1 Chem Phil Corporation produces a product in tow departments – Mixing and Packaging. For
the month of August of the current year, Packaging Department received from Mixing Department 50,000
units (costing P225,000) out of which 40,000 units were completed and transferred to finished goods
warehouse. Packaging department completed only 60% of the 5,000 units still in process.
During the month, Packaging department added 100% of the materials (costing P135,000)
at the beginning of the process. The department also incurred labor and overhead amounting to P103,200
and P206,400 respectively.
Required: Cost of production reports and necessary journal entries for Packaging Department assuming
lost was discovered (a) at the end of the process.
1.https://www.zeepedia.com/read.php?process_costing_system_normal_loss_at_the_end_of_process_
cost_and_management_accounting&b=42&c=21
References
1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc

45
Lesson Number 3
Lesson Title Process Costing involving abnormal and normal lost units
Prepare necessary journal entries of the flow of cost in different process departments
with normal and abnormal lost units
Prepare the cost of production report for each department involving both normal
and abnormal lost units
Usually manufacturing companies set standards through quality control. This is to ensure that
products produced will satisfy customers and be competitive in the market.
Production schedules are made regularly. The level of efficiency for output is also a basis for the
evaluation of the management. A minimum number of expected wastage is also set and beyond this
minimum level means an abnormal situation that is not to be charged to the product cost but to Factory
Overhead Control.
Abnormal or avoidable loss is considered unnecessary, because the conditions resulting in the
loss are controllable.
The quantity schedule will show how many abnormal units were lost. The cost charged to the
department will be the same as discussed. While the cost accounted for as follows will show the cost of
the abnormal lost to be charged to Factory Overhead Control and/or Spoiled Goods inventory if the
spoiled units have a reasonably stable resale value.

Department B
Quantity Schedule
Units lost – Normal XXXX
- Abnormal xxxx

46


Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx

Cost transferred to Factory Overhead Control XXX
Materials XXX
Labor XXX
Overhead XXX XXX
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:


Materials XXXX

Factory Overhead Control XXXX


47
Illustration:
Yares Company uses process costing in its two producing departments. The following information
pertains to Department 2 for November.
Normal spoilage is 5% of good output; inspection and identification of spoilage take place at the
90% stage of completion; materials are added after inspection.
Department 2 received 14,000 units from Department 1 at a cost of P140,000. Department 2
costs were P12,000 for materials and P89,250 for conversion costs.
A total of 8,000 units were completed and transferred to finished goods. At the end of the month,
5,000 units were still in process, estimated to be 60% complete as to conversion costs.
Required: Prepare cost of production report and related journal entries for Department 2.
Yares Company
Department 2
For the month ended, November 30, 202A
Quantity Schedule
Units completed and transferred to Finished Goods 8,000
Units still in process (60% complete) 5,000
Units lost – Normal (5% x 8,000) 400
Abnormal (1,000 – 400) 600 14,000

Cost received from Department 1 P 140,000 P10.00

Conversion Costs 89,250 7.50
Total cost added P 101,250 P 9.00
Total cost to be accounted for P241,250 P19.00

Completed and transferred to finished goods:
Completed (8,000 x P19) P152,000
Normal lost (400 x P 16.75*) 6,700 P 158,700
Cost transferred to Factory Overhead Control:
Cost from the preceding department (600 X P P10) P 6,000
Conversion Cost (600 X 90% x P7.50) 4,050 10,050
Cost from the preceding department (5,000 X P10) P 50,000
Conversion Cost (5,000 x 60% x P7.50) 22,500 72,500

48
*( P7.50 x 90% complete) + P10 (cost from preceding department) = P16.75
Materials 8,000 (100% complete) No materials were added to the lost
since they were added after inspection to good units only.
Conversion Cost 8,000 (100% complete) + 5,000 (60% complete) + 1,000 (90% complete)
11,900
Unit Cost:
Materials P12,000/8,000 = P 1.50
Conversion Cost P89,250/11,900 = P 7.50
Journal entries:
*Work in Process – Department 2 140,000


Materials 12,000
Conversion Cost 89 ,250


*Recorded in department 1
 Normal or unavoidable loss is produced under efficient operating conditions and is

uncontrollable.
 Abnormal or avoidable loss is considered unnecessary, because the conditions resulting in
the loss are controllable.
 Abnormal lost is to be charged Factory Overhead Control and/or Spoiled Goods inventory if
the spoiled units have a reasonably stable resale value.

49
Mamay Corporation produces a product trough a continuous process in two departments.

Materials in this department are added at the beginning of the process. The production and cost data
were taken from Department B during September of the current year.
Production data:
Received from department A 80,000 units

Completed and transferred 60,000 units
In process, end (50% completed) 10,000 units
Lost 10,000 units
Cost data:
Received from Department A P560,000
Materials 175,000
Labor 121,875
Overhead 243,750
Required: Cost of production report if the lost unit are abnormal discovered at the end and necessary
journal entries.
Assessment
ABC Manufacturing Corporation uses process costing. In Department 2, conversion costs are
uncured uniformly throughout the process. All materials are added at the beginning of the process. Thus,
all the units received from Department 1 had complete materials. Inspection occurs at the 90% state of
completion. Normal spoilage is discovered during inspection and is expected to be 5% of good units.
Units received from Department 1 were 12,000 units with a total cost of P84,000. Department 2
completed and transferred to Finished goods 9,000 units and 2,000 units (70% completed) were still in
process at the end of the period. Department 2 incurred P24,000 for materials and P45,200 conversion
costs.
Required: Prepare cost of production report for the month of January of the current year for Department
2.
1. https://www.facebook.com/notes/md-abu-bakkar-siddik/concept-of-loss-in-process-costing-normal-
loss-and-abnormal-loss/1540584246224534/
References

50
Lesson Number 4
Lesson Title Process Costing involving increase in units
1. Prepare journal entries of the the flow of production cost resulting in increase in units
2. Prepare related cost of production report showing the effect of increase in units.
In some departments, process will require additional materials. This results to increase in the
number of units. Hence, decreasing the unit cost from the preceding department.

Department B
Quantity Schedule
Increase in units XXXX XXXX

Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Completed and transferred to Finished Goods PXXX
Work in process, ending inventory:
Materials XXX
Labor XXX
Overhead XXX XXX

51
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:


Materials XXXX
Finished Goods XXXX

Illustration:
Wildflower Corporation produces hand cream, which requires processing in three departments.
Materials are added at the beginning of the process in Department 2. The following data pertain to the
operations of Department 2 for February:

Units added in Department 2 10,000
Units transferred to Department 3 24,000
Units in ending inventory (50% complete as to conversion cost) 6,000
Cost transferred in from Department 1 P60,000
Materials cost added in Department 2 P30,000
Conversion cost added in Department 2 P54,000
Required: Cost of production report and related journal entries for department 2 for February.

52

Department 2
For the month of ended February 28 , 202A
Quantity Schedule
Increase in units 10,000 30,000
Units completed and transferred to Department 3 24,000

Cost received from Department 1 P 60,000 P 2.00
Conversion Cost 54,000 2.00
Total cost added P 84,000 P 3.00
Total cost to be accounted for P 144,000 P 5.00

Completed and transferred to Department 3 (24,000 x P 5.00) P120,000
Cost from the department 1(6,000 x P2.00) P 12,000
Materials (6,000 x P1.00) 6,000
Conversion cost (6,000 x 50% x P2.00) 6,000 24,000
Cost from the preceding department (adjustment)

P60,000 / 30,000 units = P 2.00 per unit
Materials 24,000 (100% complete) + 6,000 (100% complete) 30,000
Conversion cost 24,000 (100% complete) + 6,000 (50% complete) 27,000
Unit Cost:
Materials P30,000/30,000 P 1.00
Conversion cost P54,000/27,000 P2.00
Journal entries:
*Work in Process – Department 2 60,000

Materials 30,000
Conversion cost 54,000

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Work in process – Department 3 120,000

 Process may require additional materials resulting in additional units. The greater the
number of units causes a decrease in unit cost from the preceding department. Thus,
the unit cost from the preceding department will be decreased and will be adjusted.
Data presented below were taken from the books of Diamond Company for the month of
September of the current year.
Units transferred in 55,000
Units added to production 5,000
Units transferred out 48,000
Units in process, end 12,000
Materials 100% complete, conversion costs 70% complete
Cost transferred in P24,750
Cost added in the department:
Materials P 7,200
Conversion costs 53,580
Required: 1. Determine the equivalent production for materials and conversion cost
2. Determine the cost of the units transferred
3. Determine the cost of the units in process, end
Assessment
Oxygen Inc. produces a cologne, which requires processing in three departments. In the third
department, materials are added, doubling the number of units. The following data pertain to the
operations of Department 3 for March:

Units transferred to finished goods storeroom 32,000
The balance of the units are still in process – 100% complete
As to materials, 50% complete as to labor and overhead
Cost transferred from Department 2 P30,000
Cost added by the department:
Materials P 8,800
Labor 9,000
Overhead 7,200
Total P25,000
Required: Prepare cost of production report.

54
References

55
Preliminaries
III. Module Number 3 (FINAL)
IV. Module Title PROCESS COSTING -Part 2 and JOINT PRODUCT and BY PRODUCT COSTING
V. Overview of the Module Process Costing topics will cover topics involving different inventory procedures
namely Average and First In First Out. The quantity schedule, the costs charged
to the department and the costs accounted for shall be the major parts of the
production reports and its accompanying supporting schedules.
It will also cover the allocation of joint costs for joint products and by products.
VI. Module Outcomes Cost of production report and related necessary journal entries.
Lesson Number 1
Lesson Title Process Costing – Average Method
Lesson Objectives: At the end of the lesson, the student is expected to

1. Illustrate and discuss the costing method using average costing
2. Prepare cost of production report for first and succeeding department using average
costing method.
The midterm coverage illustrated cost of production report listing the work in process ending
inventories. These inventories become the beginning inventories of the next period. There are two
methods of accounting these beginning inventories namely:
1. Average costing
2. First in first out costing.
In average cost method, the cost of the work in process inventory is merged with the cost added
by the department in the current period. Thus, there will be an average unit cost to be assigned.

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Average Unit Cost
Cost from beginning inventory + Cost added during the period/equivalent production
The quantity schedule will have work in process inventory beginning inventory.
Units in process beginning inventory XXXX

Units started in process (for first department)
Units received from preceding department (for next department) XXXX XXXX
Units completed and transferred to next department XXXX
The cost charged to the department will show in detail the cost of the work in process
inventory.
For the first department

Work in process – beginning inventory:
Materials P XXXX
Labor XXXX
Overhead XXXX
Cost added during the period:
Materials P XXXX
Labor XXXX
Overhead XXXX
Total cost added PXXXX
Total cost to be accounted for PXXXX
For the succeeding department(s)
Cost from preceding department:

Work in process, beginning inventory P XXXX
Transferred in during the month XXXX
Adjusted cost from preceding department PXXXX
Materials P XXXX
Labor XXXX
Overhead XXXX
Materials P XXXX
Labor XXXX
Overhead XXXX

57
The cost accounted for as follows will just be the same as discussed during the midterm period.
Equivalent production computation and treatment to lost units will be the same as discussed in
the midterm period.
Ilustration:
Callalili Company produces vitamins in two departments: Mixing and Compounding and Packaging
departments. The company uses average costing. For October, in the Mixing department, the ending
inventory is complete as to materials and ½ complete as to labor and factory overhead, and lost units
occur at the end of the department’s processing. In the Compounding and Packaging Department, the
ending inventory is 2/3 complete as to labor and overhead.
Compounding
Mixing and Packaging
Department Department
Production data (in units)
Beginning inventory 1,000 500
Started in process 15,000 -
Received from prior department 12,500
Transferred out 12,500 11,500
Ending inventory 3,000 1,500
Cost summary:
Beginning inventory:
Cost from prior department P650
Materials P980 -
Labor 230 175
Overhead 400 100
Cost for October
Materials 15,020 -
Labor 5,570 6,700
Overhead 8,300 4,275
Required: Prepare cost of production report for Mixing Department and Compounding
and Packaging department.

58
Callalili Company
Mixing Department
For the month of October, 202A
Quantity Schedule
Units in process beginning inventory 1,000
Units started in process 15,000 16,000
Units completed and transferred to next department 12,500
Units still in process 3,000
Units lost in process 500 16,000
Cost Charged to the Department

Materials P 980
Labor 230
Overhead 400
Materials P 15,020 P1.00
Labor 5,570 0.40
Overhead 8,300 0.60
Total cost to be accounted for P 30,500 P2.00

Completed and transferred to next Department
(12,500 X P2.00) + (500 X P2.00) P 26,000
Materials (3,000 x 100% x P1.00) P 3,000
Labor (3,000 x 50% X P0.40) 600
Overhead (3,000 x 50% x P0.60) 900 4,500
Materials 12,500 (100% complete) + 3,000 (100% complete) +

500 (100% complete) = 16,000 units
Labor and overhead 12,500 (100% complete) + 3,000 (1/2 complete) +
500 (100% complete) = 14,500 units
Unit Cost:
Materials P980 + P15,020/16,000 = P1.00
Labor P230 + P5,570 /14,500 = P0.40
Overhead P400+ P8,300/14,500 = P0.60

59
Callalili Company
Compounding and Packaging Department
For the month of October, 202A
Quantity Schedule
Units in process beginning inventory 500
Units received from the Mixing Department 12,500 13,000
Cost Charged to the Department

Work in process, beginning inventory P 650
Transferred in during the month 26,000
Adjusted cost from preceding department (P26,650/13,000) P26,650 P 2.05

Labor P 175
Overhead 100
Labor 6,700 0.55
Overhead 4,275 0.35
Total cost added P11,250 P0.90

Completed and transferred to Finished Goods (11,500 x P2.95) P 33,925
Adjusted cost from Department 1 (1,500 x P2.05) P 3,075
Labor (1,500 x 2/3 x P0.55) 550
Overhead (1,500 x 2/3 x P0.35) 350 3,975
Total cost accounted for P 37,900
Additional computation:
Equivalent Production:
Labor and overhead 11,500 (100% complete) + 1,500(2/3 complete) = 12,500 units
Unit Cost
Labor P175 + P6,700/ 12,500 = P0.55
Overhead P100+ P4,275/12,500 = P0.35

60
 Under average costing method, there is only one unit cost for each cost item.
 The cost of the beginning inventory is added to the current cost incurred by the
department to arrive at an average unit cost.
 The degree of completion of the beginning inventory is disregarded in computing the
equivalent production.
At the beginning of September, the Elly Corporation had P27,950 (direct materials – P7,800,
conversion cost – P20,150) in Department A’s beginning work in process inventory. The inventory
consisted of 15,500 units which had 100% of direct materials and 65% of conversion cost. During
September, 36,000 units were started in process. Cost incurred during the month were: direct materials
– P54,000; conversion costs P79,000. As the 48,000 units were completed, they were immediately
transferred to Department B. At the end of September, 3,500 were still in process and are 100% complete
as to materials and 45% converted.
Required: Cost of production report using average method.
Assessment
Consider the following data for the Assembly Department of Pink Manufacturing Company:
Quantity: Work in Process - May 1 80

Started in May 202A 500
Completed during May 202A 460
Work in Process – May 31, 202A 120
Stage of Completion: Work in Process May 1 Work in Process May 31

Materials 90% 60%
Conversion costs 40% 30%
Cost Data Materials Conversion Cost

Work in Process – May 1 P 49,336 P 9,104
Cost added during May 322,000 139,200
The Assembly department uses the average method of process costing.
Required: Cost of production report for the month of May.
Suggested Links
1. https://xplaind.com/267146/process-costing-weighted-average

61
References
3 Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise & Co. Inc.

62
Lesson Number 2
Lesson Title Process Costing – First In First Out
1. Illustrate and discuss the costing method using FIFO method
2. Prepare cost of production report of the first and succeeding department using
FIFO method
The first in first out method may be used to account for the beginning work in process inventory.
The work in process inventory costs remain to be separated from the current cost incurred by the
department and not averaged with the new costs. Thus, there will be one unit cost from goods completed
from the beginning work in process inventory and another unit cost from the goods completed during the
period.
The cost of completing the units in the beginning inventory is computed first, followed by
computing the cost of the goods started and completed during the period.
Thus, the degree of completion for both work in process beginning and ending are considered.
The quantity schedule will be the same. However, the cost charged to the department and the
cost accounted for will be different.
The cost charged to the department will present the work in process beginning inventory in total
followed by current cost transferred in from the preceding department for the succeeding department
and the cost added by the department. This is shown below.
Cost charged to the department
Work in Process, beginning inventory PXXXX

Transferred in during the period PXXXX

Materials PXXXX
Labor XXXX
Overhead XXXX

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The cost accounted for as follows will show the cost of completed and transferred considering
first the cost of beginning inventory with the necessary cost to complete and the cost of the units started
and completed during the period. The work in process ending inventory will be the same as previously
discussed. This is shown below.
Cost accounted for as follows
Cost completed and transferred to the next department:

From Beginning inventory:
Inventory cost PXXXX
Labor added XXXX
Overhead added XXXXX PXXXX
From current production XXXX
PXXXX
Cost from preceding department PXXXX
Material XXXX
Labor XXXX
Overhead XXXX XXXX
Total cost accounted for PXXXX
Equivalent Production Computation
Below is a simpler way to compute.
Work in Process Beginning inventory XXX (100% - % completed work last period) XXXX
Started and completed this period XXXX
Work in process ending inventory (completed this period) XXXX
Equivalent Production XXXX
Treatment for lost units will be the same as discussed in the midterm period.
Illustration:
Cannery Corporation uses the FIFO process costing method. All spoilage that occurred in
Department 2 during June was normal and applicable to units received during June from the preceding
department.
June cost data for Department 2 were as follows:
Beginning Current
Inventory Cost
Cost transferred in from Department 1 P13,200 P91,200
Conversion cost 6,000 60,000
The Department 2 beginning inventory (2/3 converted) was 1,200 units and 8,000 units were
transferred in from Department 1. The ending inventory was 1,000 units (1/2 converted), and 7,800 units
were transferred to Department 3.
Required: Cost of production report for Department 2 for the month of June.

64
Cannery Corporation
Department 2
For the month June, 202A
Quantity Schedule
Units in process beginning inventory 1,200
Units received from the Department 8,000 9,200
Units still in process 1,000
Units lost in process 400 9,200
Cost charged to the department
Work in Process, beginning inventory (P13,200 + P6,000) P 19,200
Cost from preceding department

Transferred in during the period 91,200 P12.00

Conversion cost 60,000 8.00
Cost accounted for as follows
Cost completed and transferred to the next department:

From Beginning inventory:
Inventory cost P19,200
Conversion cost added (1,200 x 1/3 X P8.00) 3,200
P 22,400
From current production (6,600 x P20.00) 132,000
P154,400

Adjusted Cost from preceding department (1,000 x P12) P 12,000
Conversion Cost ( 1,000 x ½ x P8.00) 4,000 16,000
Additional Computation
Adjusted cost from the preceding department
P91,200/ (8,000 units – 400 lost units) = P12.00

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Work in Process Beginning inventory 1,200 (1 – 2/3 completed work last period) 400
Started and completed this period (7,800 – 1,200) 6,600
Work in process ending inventory 1,000(1/2 completed this period) 500
Equivalent Production 7,500
Unit cost:
Conversion P60,000/7,500 = P8.00
 The work in process inventory costs remain to be separated from the current cost incurred by
the department.
 The degree of completion for both work in process beginning and ending are considered.
 The cost transferred to the next department will be coming from: (1) the work in process
beginning inventory plus additional cost added and (2) current production, which are the one
started and completed during the period.
At the beginning of September, the Elly Corporation had P27,950 (direct materials – P7,800,
conversion cost – P20,150) in Department A’s beginning work in process inventory. The inventory
consisted of 15,500 units which had 100% of direct materials and 65% of conversion cost. During
September, 36,000 units were started in process. Cost incurred during the month were: direct materials
– P54,000; conversion costs P79,000. As the 48,000 units were completed, they were immediately
transferred to Department B. At the end of September, 3,500 were still in process and are 100% complete
as to materials and 45% converted.
Required: Cost of production report using fifo method.
Assessment
At the beginning of November, the Fay Company had P27,950 in Department’s A beginning work
in process inventory. The inventory consisted of 15,500 units which had 100% of direct materials and 65%
of conversion cost. During November 36,00 units were started in process. Cost incurred during the month
were: direct materials – P54,000; conversion cost P79,000. As the 48,000 units were completed, they
were immediately transferred to Department B. At the end of November, 3,500 units were still in process
and were 100% complete as to materials and 45% converted.
Required: Cost of production report using fifo method.

66
Suggested Links
1. https://xplaind.com/287240/process-costing-fifo
References

67
Lesson Number 3
Lesson Title Joint Product Costing
Lesson Objectives : At the end of the lesson, the student is expected to

1. Discuss and illustrate different methods of cost allocation methods for joint
products
2. Compute product cost of the joint products considering allocated cost and identifiable
cost
3. Determine the cost of goods sold and gross profit of the joint products
Assigning cost to products is required for inventory costing for income determination and
financial statement purposes By product and joint product costing shall provide data that may be
beneficial to attain maximum profit and evaluating actual performance.
Joint costs are costs incurred in the common processing of products, which may be are joint
products or by products, from the same process. A joint cost is incurred before the products separate
and become identifiable. Thus, this cost should be allocated to the products produced. However, the
costs after separation are identifiable with the individual products which are no longer allocated.
Joint products are products that are produced simultaneously in one or more than common
processes. There is a point that they split off and will be processed individually. They have relative
sales value. They are also termed as main products.
Thus, there are two kinds of costs namely:
1. Joint costs or cost before split off or cost before separation or cost before further processing.
These shall be allocated by using different methods. The total product cost is the sum of
joint cost allocation plus the cost after split off. This will determine the inventory costs,
cost of goods manufactured and sold and gross profit.
2. Cost after split off or cost after separation or further processing costs. Since these are
identifiable costs, they need not be allocated.
Methods of Allocating joint costs to joint products:
1. Physical output method/ average unit cost method

2. Market value at split off method
3. Net realizable value method or hypothetical market value or estimated market
value at split off.

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Physical Output Method
The quantity of output produced will be the basis for allocating the joint costs. The formula to
get the joint cost allocation will be : Joint Costs/ total output = the joint cost per unit multiplied by the
units produced for each product.
Market Value at Split Off Method
When the market value at split off is known and reliable, it may be used as a basis for allocation.
We have to compute the total market value of the products at split off. The total joint cost divided by the
total market value will equal the percentage cost ratio of the two variables. This percentage ratio is
multiplied to the total market value of the individual product to compute the share in the joint cost.
Net Realizable Method
If there is no available market value at split off point, we have to estimate it by using the net
realizable value method.
The estimated market value is equal to the Final Sales Value less the (further processing plus cost
disposal cost).
Then the estimated market value will be used to allocate the joint cost as discussed in the market
value at split off method.
Illustration:
Helen Corporation manufactures products, W, X, Y and Z from a joint process. Additional
information follows:
Market If Processed Further
Units Value at Additional Market
Product Produced Split Off Cost Value
W 6,000 P80,000 P7,500 P90,000
X 5,000 60,000 6,000 70,000
Y 4,000 40,000 4,000 50,000
Z 3,000 20,000 2,500 30,000
Total 18,000 P200,000 P20,000 P240,000
Total joint cost incurred was P160,000.
Required: Round you answer to whole number.

1) Joint cost allocation if cost will be allocated using (a) physical output method (b) market value
at Split off point (c) net realizable value method
2) If 80% of the units produced sold and using market value at split off method of allocating joint
Cost, compute for the (a) ending inventory (b) cost of goods sold and (c) gross profit
Assume no beginning inventory.

69
1. (a)Physical output method
Units Joint
Product Produced Cost
W 6,000 P53,280
X 5,000 44,400
Y 4,000 35,520
Z 3,000 26,800
Total 18,000 P160,000
Joint cost per unit = Joint cost/total units produced

P160,000/18,000 = P8.88
1. (b) Market value at split off
Market
Units Value at Joint
Product Produced Split Off Cost
W 6,000 P80,000 P64,000
X 5,000 60,000 48,000
Y 4,000 40,000 32,000
Z 3,000 20,000 16,000
Total 18,000 P200,000 P160,000
*Cost percentage of Joint cost to market value at split off

= Total joint cost/total market value
= P160,000/P200,000
= 80%
*To be multiplied to the market value at split off
1. (c) Net Realizable Method

Final *Estimated
Market Additional Market Value Joint
Product Value Cost at Split Off Cost
W P90,000 P7,500 P 82,500 P 60,002
X 70,000 6,000 64,000 46,547
Y 50,000 4,000 46,000 33,456
Z 30,000 2,500 27,500 19,995
P240,000 P20,000 P220,000 P160,000
* Final Market value – Additional Cost

**Cost percentage of joint cost to estimated market value at split off
= Total joint cost/estimated total market value at split off
= P160,000/P220,000
= 72.73%
**To be multiplied to the estimated market value at split off

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2. (a) Ending Inventory

Units Joint Additional Product Unit Ending Ending
Product Produced Cost Cost Cost Cost Units Invty Inventory
W 6,000 P64,000 P7,500 P71,500 P11.917 1,200 P14,300
X 5,000 48,000 6,000 54,000 10.80 1,000 10,800
Y 4,000 32,000 4,000 36,000 9.00 800 7,200
Z 3,000 16,000 2,500 18,500 6.167 600 3,700
P160,000 P20,000 P180,000 P36,000
Product cost = Joint cost + additional cost

Unit Cost = Product cost/ units produced
Ending Inventory in units = Units produced x 20% (100% - 80% units sold)
Ending inventory value = Ending inventory in units x unit cost
2. (b) Cost of goods sold (assuming no beginning inventory)
Product Product Cost Ending Inventory Cost of goods sold

W P71,500 P14,300 P57,200
X 54,000 10,800 43,200
Y 36,000 7,200 28,800
Z 18,500 3,700 14,800
P180,000 P36,000 P144,000
Cost of goods sold = Product Cost – Ending inventory

Product cost is the cost of goods manufactured
2. (c) Gross Profit

Final Cost
Market of Goods Gross
Product Value Sold Profit
W P90,000 P57,200 P 32,800
X 70,000 43,200 26,800
Y 50,000 28,800 21,200
Z 30,000 14,800 15,200
P240,000 P144,000 P 96,000
Gross Profit = Final Market Value – Cost of goods sold

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 Joint costs are costs incurred in the common processing of products, which may be are joint
products or by products, from the same process
 Joint products are products that are produced simultaneously in one or more than common
processes.
 The total product cost is the sum of joint cost allocation plus the cost after split off. This will
determine the inventory costs, cost of goods manufactured and sold and gross profit.
 Methods of Allocating joint costs to joint products:
Physical output method/ average unit cost method
Market value at split off method
Net realizable value method or hypothetical market value or estimated market
value at Split off.
Problem 1 The company produces four joint products, which have a manufacturing cost of P434,000 at
split off point. Data pertaining to these products are as follows:
Product Market Value at Split off Units Produced

A P4.00 20,000
B 1.75 32,000
C 3.00 36,000
D 2.75 24,000
Required: Allocate the joint cost using (a) Market value method (b) Average unit cost method
Problem 2 The Moonlight Company produced three joint products at a joint cost of P264,000.
Additional information for a recent period is as follows:
Sales value and Additional
Processing if processed
Product Sales Value at Split off Units Produced Sales Value Add’l Cost
A P88,000 13,200 P121,000 P19,800
B 77,000 8,800 99,000 15,400
C 55,000 4,400 66,000 11,000
Required: Allocate joint costs using: (a) Physical unit method

(b) Net realizable method

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Assessment
Bayer Chemicals manufactures three kinds of chemicals. Total joint costs to be allocated among
these chemicals amounted to P60,000. The following are pertinent data regarding these chemicals.
Product Units in Sales Price Separate Cost Final Sales
Output At Split Off After Split Off Price
Chemical 1 7,500 P3.00 P1.00 P4.25
Chemical 2 10,000 P2.00 P0.50 P3.00
Chemical 3 12,500 P2.00 P0.75 P3.00
1. Allocation of joint cost to the joint products using: (1) average unit cost method (2) market
value at split off method (3) net realizable value method
2. Using the average unit cost method, if 75% of the units output were sold and no beginning
inventory, compute for the following (1) ending inventory (2) cost of goods sold (3) gross profit.
Suggested Links
1. https://kfknowledgebank.kaplan.co.uk/joint-and-by-product-costing-
References

73
Lesson Number 4
Lesson Title By Product Costing
Lesson Objectives : At the end of the lesson, the student is expected to:
1. Discuss and illustrate the options involved in allocating costs to by products

2. Prepare income statement showing different treatments for the revenue from by products
if joint cost is not allocated.
3. Determine the joint cost to be allocated to by product using the reversal cost method or
4. Prepare income statement showing revenues from main product(s) and by product(s)
Joint costs are costs incurred in the common processing of products, which may be are joint
products or by products, from the same process.
By products is just a consequence in processing the main product(s). They just have a low sales
value as compared with the main product(s).
There are two options that may be done regarding the joint costs incurred during the process.
1. Joint cost may not be allocated to the by product. However, sales from the by product may be
treated as (a) additional sales revenue (b) deduction from cost of goods sold (c) Other income
(d) deduction from the total manufacturing cost
2. Joint cost may be allocated to by product if the by product income is significant and considered
important by the management. There are two methods namely (a) net realizable value method
(b) reversal cost method
Illustration:
Blue Company produces product XY from a process that also yield a by product Z. The by product
requires P4,000 additional processing cost. The company decided to charge the joint cost to XY. The by
product will required selling and administrative of P1,000. Information concerning a batch produced in
January of the current year follows:
Product Units Produced Market Value at Split Off Units Sold

XY 50,000 P10.00 40,000
Z 20,000 1.00 15,000
The costs incurred up to the split off point are:
Direct Materials P120,000
Direct Labor 100,000
Required: Income statements showing the net revenue of the by product treated as (a)
additional sales revenue (b) deduction from cost of goods sold (c) Other income (d) deduction from the
total manufacturing cost

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1. Joint cost not allocated to the by product
1.a Sales(net revenue) from by product treated as additional sales revenue
Sales: Main Product P400,000

By Product 10,000 P410,000
Less: Cost of Goods Sold:
Total Manufacturing cost P300,000
Less: Inventory, January 31 60,000 240,000
Less: Selling and Administrative expenses 80,000
Net Income P 90,000
The net revenue from the by product is computed as follows:
Sales P15,000
Less: Additional processing cost P4,000
Selling and Administrative 1,000 5,000
Net Revenue of by product P10,000
Inventory January 31 300,000/50,000 x 10,000 (unsold units) = P60,000
1. b Sales (net revenue) from by product deduction from cost of goods sold

Less: Inventory, January 31 60,000
Cost of goods sold P240,000
Less: Revenue from by product 10,000 230,000
Net Income P 90,000

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1.c Sales (net revenue) from by product treated as other income

Net Operating Income P 80,000
Add: Revenue from by product 10,000
Net Income P 90,000
1.d Sales (net revenue) from by product deduction from total manufacturing cost

Less: Revenue from by product 10,000
Net manufacturing cost P290,000
Net Income P 88,000
Inventory January 31 P290,000/50,000 x 10,000 (unsold units) P 58,000
Note: All three presentations (1.a, 1.b, 1.c) resulted in the same amount of net income. The presentation
in the income statement will not affect the amount of net income. It is only in case 1.d that the net
income is affected because of the total manufacturing costs was decreased and as a result, the cost of
inventory of the main product was affected. This caused the net income to decrease.

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2. Joint costs allocated to by product
Maxwell Company manufactures product AB from a process that also produces by product X
and Y. The following data pertain to operations for April of the current year.
AB X Y Total
Unit produced 10,000 6,000 4,000 20,000
Sales price per unit P20.00 P3.00 P2.75
Units sold 8,000 6,000 4,000 18,000
Subsequent cost P62,300 P5,700 P4,300 P72,300
Operating expenses P32,000 P2,500 P1,000 P35,500
Desired Profit P2,000 P1,200
Required:
1. Share of the by products in the joint cost of P50,000 using reversal cost method.
2. Net income for the main product and the by products.
1. Share of the by products in the joint cost
X Y
Sales P18,000 P11,000

Less: Manufacturing Cost
Cost before Separation P 7,800 P 4,500
Cost after Separation 5,700 4,300
Total Manufacturing Cost P 13,500 P 8,800
Gross Profit P 4,500 P 2,200
Less: Operating expenses 2,500 1,000
Desired Profit P 2,000 P 1,200
Steps to compute share of the by products in the joint cost.

1. Add the desired profit and the operating expenses to get the gross profit.
2. Deduct the gross profit from sales to arrive at the total manufacturing cost.
3. Deduct from the total manufacturing cos the cost after separation to compute
the estimated share in the joint cost of the by products.

77
2. Net income for the main product and the by products
AB X Y Total
Sales P160,000 P18,000 P11,000 P189,000

Less: Cost of goods sold
Manufacturing Cost
Cost before Separation P 37,700 P 7,800 P 4,500 P 50,000
Cost after Separation 62,300 5,700 4,300 72,300
Total Manufacturing Cost P100,000 P 13,500 P 8,800 P122,300
Less: Ending inventory 20,000 0__ 0__ 20,000
Cost of goods sold P 80,000 P 13,500 P 8,800 P102,300
Gross Profit P 80,000 P 4,500 P 2,200 P 86,700
Less: Operating expenses 32,000 2,500 1,000 35,500
Profit P 48,000 P 2,000 P 1,200 P 51,200
Steps to compute net income

1. Share of the main product in joint cost = P50,000 – (P7,800 + P4.500)
2. Ending inventory = 2,000 units x (P100,000/10,000 units) = P20,000
3. Having all the necessary figures, the income can be computed.

 By products is just a consequence in processing the main product(s).
 Joint cost may be allocated or not allocated. It is the management to decide on how the
joint cost will be treated related to by product.
The Laguna Manufacturing Company produces a product known as “Strawberry” from which by
product results. This by product can be sold at P1.00 a pound. The manufacturing costs of the main
product and by product up to the point of separation for the three month period ending March 31 of the
current year follows:
Materials P30,000
Labor 17,400
Overhead 17,400
The units processed were 20,000 pounds of the main product and 2,000 pounds of the by product.
During the period 18,000 pounds of the main product were sold at P10.00 a pound and 1,000 pounds of
the by product. Selling and administrative expenses applicable to the main product is 30% of sales.
Required: 1. Income statements assuming that the sales of the by product is treated as income, using
the different methods
2. Income statement assuming that the sales of the by product is treated as reduction of the
Production cost of the main product.

78
Assessment
Fisher Company manufactures one main product and two by products, A and B. For April, the
following data are available.
By Product____
Main Product A B
Sales P75,000 P6,000 P3,500
Manufacturing cost after separation 11,500 1,100 900
Marketing and administrative expense 6,000 750 500
Manufacturing cost before separation totaled P37,500. Profit allowed for A and B is 15% NS
12% respectively.
Required:
1. Compute the manufacturing cost before separation for by products A and B using the market
value (reversal cost) method.
2. Prepare income statement (showing details for sales and costs for each product)
Suggested Links:
1. https://kfknowledgebank.kaplan.co.uk/joint-and-by-product-costing-
References

79
LEARNING MODULE
CAC 102 COST ACCOUNTING AND CONTROL
SECOND SEMESTER SCHOOL YEAR 2020-2021
CHECKED BY
AUREA B. NATIVIDAD HAIDEE B. GONZALES
APPROVED BY
ELLEN C. ALMORO
Director
Department of Business Education

Module DBE Cost Acctg Second Sem 2020 2021 1

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Course Code CAC 202

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

I. Course Code CAC 102

II. Course Title COST ACCOUNTING AND CONTROL

III. Module Number 1 (Prelim)

IV. Module Title Cost Accounting and Job Order Costing

Lesson 1: Introduction to Cost Accounting and Cost Concepts

Discussion and Application

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Merchandising versus Manufacturing Operations

Product Costs/Manufacturing Costs

Prime Costs equals direct materials and direct labor

Conversion costs equals direct labor and factory overhead

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Non Manufacturing Costs/Period Costs

Costs classified as to Variability

Summary of the Lesson

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Marketing Costs P160,000

Required: Compute for the following:

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Problem 2 Classify the following items if manufacturing or non manufacturing costs:

1. Wood used in book cases

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Lesson 2: COST ACCOUNTING CYCLE

Discussion and Application

Figure 1: Cost of Accounting Cycle—Flow of Manufacturing Cost

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

The following are the transactions incurred in March:

a) Materials purchased on account P50,000.

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

(a) Journal entries

Accrued Payroll 86,000

(g) Factory Overhead Control 41,000

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

(j) Cost of Goods Sold 200,000

Factory Overhead Control Factory Overhead Applied Cost of Goods Sold

SSS Philhealth Pagibig Total

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Materials Inventory, March 1, 202A P10,000

Depreciation Expense P10,000

(d) Sales P400,000

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Gross Profit P203,000

Summary of the Lesson

Cost Accounting Cycle – Flow of Manufacturing Cost

Problem 1 The following pertain to manufacturing operations:

Required: Prepare the necessary journal entries.

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Inventories: March 1 March 31

Required: Prepare the cost of goods manufactured and sold statement.

Inventories: September 1 September 30

Required: 1. Work in process, September 1

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL

Lesson 3: JOB ORDER COSTING

Discussion and Application

Learning Module on CAC 102 - COST ACCOUNTING AND CONTROL