Manufacturing Concerns

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Learning Objectives:

1. Prepare the pro-forma entries of the common transactions for a manufacturing entity;
2. Prepare a statement of cost of goods sold

Reference:
Fundamentals of Financial Accounting and Reporting by Win Ballada

Cost of goods sold (COGS) pertains to the costs for a business to sell inventory over a given
period of time. This could be monthly, quarterly, or yearly. You could calculate COGS every
month, and also do a quarterly review to make sure everything lines up. Other businesses may
only do this quarterly.

COGS is a method of giving a real-world valuation of inventory and provides analysis of how
much the company spend to turn the raw materials into sold products.

ACCOUNTING FOR MANUFACTURING ACTIVITIES

Two accounting systems may be used in accounting for manufacturing activities are:

Cost System Non-cost System

✔ Keeps perpetual records of the records of ✔Produces a manufacturing accounting

the cost of raw material, work in process system based on the periodic inventory
and finished goods inventories. system.
✔ Provides more timely information about ✔ The cost of raw materials, work in
those inventories and charges in their level process and finished goods inventories are
as well as the manufacturing cost per unit of based on
product which managers use in their efforts physical counts of the quantities on hand at
to control cost. the end of each period. This information is
the used to compute the amounts
consumed, finished and sold during the
period.

The following are the pro-forma journal entries of the more common transactions of a
manufacturing entity under THE NON-COST SYSTEM:

1. To record purchase of raw materials and indirect materials on account:

Purchases – Raw Materials XXX

Indirect Materials XXX

Vouchers Payable XXX

2. To record of defective raw materials returned to vendor:

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Voucher Payable XXX

Purchase Returns and allowances XXX

3. To record payment of account with in the discount period:

Voucher Payable XXX

Purchase discounts XXX

Cash in Bank XXX

4. To record freight and handling raw materials:

Transportation In XXX

Vouchers Payable XXX

5. To record payroll for factory employees:

Direct Labor XXX

Indirect Labor XXX

SSS Contributions Payable XXX

Pag-IBIG Contributions Payable XXX

Withholding Taxes Payable XXX

Vouchers Payable XXX

6. To record employer’s payroll expenses

Employer’s Payroll Contributions – Factory XXX

SSS Contributions Payable XXX

Medicare Contributions Payable XXX

EC- Contribution Payable XXX

Pag-IBIG Contribution Payable XXX

7. To record distribution of payroll:

Voucher Payable XXX

Cash in Bank XXX

8. To record accrual of factory payroll:

Direct Labor XXX

Indirect Labor XXX

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Accrued Payroll XXX

9. To record depreciation of factory building

Depreciation Expense – Factory Bldg XXX

Accumulated Depreciation – Factory Bldg XXX

10.To record repairs on factory building:

Repairs and Maintenance – Factory Building XXX

Vouchers Payable XXX

11.To record sales of finished good:

Accounts Receivable XXX

Sales XXX

12.To record sales return of customers:

Sales Returns and Allowance XXX

Accounts Receivable XXX

13.Closing entries peculiar to manufacturing concerns:

a. To close manufacturing accounts with credit balance, and to record ending inventory for
materials and work in process:

Raw Materials Inventory, end XXX

Work in Process Inventory, end XXX

Purchases Returns and Allowances XXX

Purchases Discounts XXX

Manufacturing Summary XXX

B. To close manufacturing accounts with debit balance:

Manufacturing Summary xxx

Raw Materials Inventory, beginning xxx

Work in Process Inventory, beginning xxx

Purchases – Raw Materials xxx

Transportation In xxx

Direct Labor xxx

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Indirect Labor xxx

Indirect Materials xxx

Depreciation Expense – Factory Bldg xxx

Repairs and Maintenance – Factory Bldg xxx

Miscellaneous Factory Expense xxx

C. To close manufacturing summary and beginning finished goods inventory to income

summary:

Income Summary xxx

Manufacturing Summary xxx

Finished Goods Inventory xxx

D. To establish the ending finished goods inventory:

Finished Goods Inventory, beginning xxx

Income Summary xxx

STATEMENT OF COST OF GOODS SOLD

Renante Balocating Manufacturers
Statement of Cost of Goods Sold
For the Year Ended Dec. 31, 2019
Direct Material Used:
Raw Materials Inventory, beginning Pxx
Add: Net Cost of Purchases:
Purchases – Raw Materials Pxx
Less: Purchases Return and Allowance Pxx
Purchases Discounts xx xx
Net Purchases Pxx
Add: Transportation In xx xxx
Raw Materials Available for Use Pxxx
Less: Raw Materials Inventory, end xxx Pxxx
Direct Labor xxx
Manufacturing Overhead
Indirect Labor Pxxx
Indirect Materials xxx
Depreciation Expense – Factory Bldg. xxx
Repairs and Maintenance – Factory Bldg. xxx
Amortization of Patents xxx
Real Property Taxes xxx
Factory Utilities xxx
Tools Used xxx
Employer’s Payroll Contributions – Factory xxx
Miscellaneous Factory Expenses xxx xxx
Total Manufacturing Costs Pxxx
Add: Work in Process, beginning xxx_
Total Cost of Goods Placed in Process Pxxx
Less Work in Process, end xxx_
Cost of Goods Manufactured Pxxx
Add: Finished Goods, beginning xxx_
Total Goods Available for Sale Pxxx

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Less: Finished Goods, end xxx_
Cost of Goods Sold Pxxx

SEATWORK 1

In addition to the year-end statement of financial position and income statement, the
management of Esterlina Geneva Company required the controller to prepare the statement
of cost of goods manufactured. During 2022, P361,920 of raw materials were purchased.
Operating cost date and inventory account balances for 2022 follow:

Direct Labor (10,430 hours at P9.50 per hour) P 99,085

Plant Supervision 42,500
Indirect Labor (20,280 hours at P6.25 per hour) 126,750
Factory Insurance 8,100
Factory Utilities 29,220
Depreciation – Factory Building 46,200
Depreciation – Factory Equipment 62,800
Manufacturing Supplies 9,460
Repairs and Maintenance 14,980
Selling and Administrative Expense 76,480
Raw Materials Inventory, Jan. 1, 2022 26,490
Work in Process Inventory, Jan. 1, 2022 101,640
Finished Goods Inventory, Jan. 1, 2022 148,290
Raw Materials Inventory, Dec. 31, 2022 24,910
Work in Process Inventory, Dec. 31, 2022 100,400
Finished Goods Inventory, Dec. 31, 2022 141,100

Required:
1. Compute the cost of direct materials used during the year.
2. Compute the total manufacturing costs for the year.
3. Compute the cost of goods manufactured during the year.

SEATWORK 2

Write the term that the given sentences describe.

_______________ 1) Manufacturing cost required to convert raw materials into a finished
product, including direct labor and overhead cost.
_______________ 2) Labor that can economically be traced to units of finished product
_______________ 3) Material can economically be traced to units of finished product
_______________ 4) All manufacturing costs other than direct material and direct labor
_______________ 5) Costs not associated with the manufacturing process that are expensed in
the period incurred.

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