Cost Accounting Tutorial

Recording Cost as Incurred and Matching Cost

flow and Work Flow

As each cost is incurred, it must be recorded in an

appropriate general ledger account. Different
accounts are needed at different points in the
operating cycle(Guerrero, 2010).
Recording Cost as Incurred and Matching Cost
flow and Work Flow

As each cost is incurred, it must be recorded in an

appropriate general ledger account. Different
accounts are needed at different points in the
operating cycle(Guerrero, 2010).
Recording Cost as Incurred and Matching Cost
flow and Work Flow

As each cost is incurred, it must be recorded in an

appropriate general ledger account. Different
accounts are needed at different points in the
operating cycle(Guerrero, 2010).
Recording Cost as Incurred and Matching Cost
flow and Work Flow

As each cost is incurred, it must be recorded in an

appropriate general ledger account. Different
accounts are needed at different points in the
operating cycle(Guerrero, 2010).
Recording Cost as Incurred and Matching Cost
flow and Work Flow

As each cost is incurred, it must be recorded in an

appropriate general ledger account. Different
accounts are needed at different points in the
operating cycle(Guerrero, 2010).
PROBLEM 1
 MANUFACTURING ENTITY
Raw Materials, Jan. 1 125,000
Net Purchases (150,000 +20,000 - 5,000 - 2,000) 163,000
Raw materials available for use 288,000
Less: Raw Materials Dec. 31 65,000
Raw Material Used 223,000
Direct Labor 70,000
Factory Overhead 110% of Prime Cost (223,000 + 70,000) 322,300
Total manufacturing cost 615,300
Works in process, Jan. 1 90,000
Total cost of goods in process 705,300
Less : Good in process, Dec. 31 120,000
Cost of goods manufactured 585,300
Finished goods, Jan. 1 100,000
Goods available for sale 685,300
Less : Finished goods, Dec. 31 80,000
Cost of goods sold 605,300
PROBLEM 2
Required
1. Prepare journal entries to record the preceding
transactions.

2. Post the entries in (1) above to T-accounts (don’t forget

to enter the opening balances in the stock accounts).

3. Is manufacturing overhead under-applied or over-applied

for the year? Prepare a journal entry to close any balance
in the manufacturing overhead account to Cost of Goods
Sold. Do not allocate the balance between ending stock
and Cost of Goods Sold.

4. Prepare a profit and loss account for the year.

Problem 2.

Hogle Company is a manufacturing firm that uses job-

order costing. On 1 January, the beginning of its fiscal
year, the company’s stock balances as follows:

Raw Materials P 20,000

Work in progress P 15,000
Finished Goods P 30,000

The company applies overhead cost to jobs on the basis of

machine hours worked. For the current year, the company
estimated that it would work 75,000 machine-hours and
incur P45,000 in manufacturing overhead cost.
The following transactions were recorded for the year:

a) Raw materials were purchased on account, P410,000.

b) Raw materials were requisitioned for use in production,

P380,000 (P360,000 direct materials and P20,000 indirect
materials).

c) The following costs were incurred for employee

services; direct labor P75,000; indirect labor P110,000;
sales commissions P90,000 and administrative salaries
P200,000.

d) Sales travel cots were P17,000.

The following transactions were recorded for the year:

e) Utility costs were incurred in the factory P43, 000.

f) Advertising costs were incurred, P180,000.

g) Depreciation was recorded for the year, P350,000 (80%

relates to factory operations, and 20% relates to selling
and administrative activities)

h) Insurance expired during the year, P10,000 (70% relates

to factory operations, and the remaining 30% relates to
selling and administrative activities).
The following transactions were recorded for the year:

i)Manufacturing overhead was applied to production. Due

to greater than expected demand for its products, the
company worked 80,000 machine-hours during the year.

j) Goods costing P900,000 to manufacture according to

their job cost sheets were completed during the year.

k) Goods were sold on account to customers during the

year at a total selling price of P1,500,000. The goods cost
P870,000 to manufacture according to their job cost
sheets.
Required
1. Prepare journal entries to record the preceding
transactions.

2. Post the entries in (1) above to T-accounts (don’t forget

to enter the opening balances in the stock accounts).

3. Is manufacturing overhead under-applied or over-applied

for the year? Prepare a journal entry to close any balance
in the manufacturing overhead account to Cost of Goods
Sold. Do not allocate the balance between ending stock
and Cost of Goods Sold.

4. Prepare a profit and loss account for the year.

PROBLEM 3
Illustration 3: Cost of sales
The records of ABC Co. showed the following information:

Decrease in accounts payable 30,000

Disbursements for purchases 220,000
Increase in raw materials 50,000
Direct labor is 50% of raw materials used in production ??
Manufacturing overhead is 20% of prime costs ??
Increase in work-in-process inventory 20,000
Decrease in finished goods inventory 25,000

Compute the Cost of Goods Sold

Remember
Prime Cost = Direct Materials + Direct Labor
Conversion Cost = Direct Labor + Manufacturing Overhead
Remember the format in computing COST OF
SALES in a manufacturing company
MANUFACTURING ENTITY
Beginning Raw Materials XX
Net Purchases XX
Raw materials available for use XX
Less: Ending Balance Raw Materials XX
Raw Material Used XX
Direct Labor XX
Factory Overhead XX
Total manufacturing cost XX
Beginning goods in process XX
Total cost of goods in process XX
Less : Ending good in process XX
Cost of goods manufactured XX
Beginning finished goods XX
Goods available for sale XX
Less : Ending finished goods XX
Cost of goods sold XX
LETS START WITH MATERIALS
Solution
Accounts Payable
430,30,000 Beg*

END -
Solution
Accounts Payable
430,30,000 Beg*
Disbursement 220,000

END -
Solution
Accounts Payable
430,30,000 Beg*
Disbursement 220,000 190,000 Purchased

END -
Solution
Raw Materials Inventory
Beg -

50,000 END
Solution
Raw Materials Inventory
Beg -
Purchased 190,000

50,000 END
Solution
Raw Materials Inventory
Beg - Raw Material
Purchased 190,000 140,000 used in pro-
duction

50,000 END
Solution
Work in Process Inventory
Beg -

20,000 END
Solution
Work in Process Inventory
Beg -
Raw Materials Used 140,000

20,000 END
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000

prime cost = DM + DL
= 140,000 + (DL is 50% of DM)
= 140,000 + (140,000 x 50%)
= 140,000 + 70,000 20,000 END
= 210,000
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000
Direct Labor 70,000

prime cost = DM + DL
= 140,000 + (DL is 50% of DM)
= 140,000 + (140,000 x 50%)
= 140,000 + 70,000 20,000 END
= 210,000
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000
Direct Labor 70,000
Manufacturing Overhed
42,000
Manufacturing overhead is 20% of Prime cost
Prime cost x 20%
210,000 x 20% = 42,000 20,000 END
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000
Direct Labor 70,000
Manufacturing Overhed
42,000
Total Manufacturing
Manufacturing overhead is 20% Cost = 252,000
of Prime cost
Prime cost x 20%
210,000 x 20% = 42,000 20,000 END
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000
Direct Labor 70,000
Manufacturing Overhed
42,000
TMC + Beg = Total Goods put into
Manufacturing overhead is 20% of Prime cost
process
Prime cost = 252,000 + 0 = 252,000
x 20%
210,000 x 20% = 42,000 20,000 END
Solution

Work in Process Inventory

Beg -
Raw Materials Used 140,000
Direct Labor 70,000 232,000 COST OF GOODS
Manufacturing Overhed
42,000 MANUFACTURED

Total Manufacturing
Manufacturing overhead is 20% Cost = 252,000
of Prime cost
Prime cost x 20%
210,000 x 20% = 42,000 20,000 END
Solution
Finished Goods Inventory
Beg 25,000
COGM 232,000

- END
Solution
Finished Goods Inventory
Beg 25,000
COGM 232,000
Total Cost of Goods Available for
Sale = 257,000
- END
Solution
Finished Goods Inventory
Beg 25,000
COGM 232,000 257,000 COGS / COS

- END
Remember the format in computing COST OF
SALES in a manufacturing company
MANUFACTURING ENTITY
Beginning Raw Materials 0
Net Purchases 190,000
Raw materials available for use 190,000
Less: Ending Balance Raw Materials 50,000
Raw Material Used 140,000
Direct Labor 70,000
Factory Overhead 42,000
Total manufacturing cost 252,000
Beginning goods in process 0
Total cost of goods in process 252,000
Less : Ending good in process 20,000
Cost of goods manufactured 232,000
Beginning finished goods 25,000
Goods available for sale 257,000
Less : Ending finished goods 0
Cost of goods sold 257,000
MULTIPLE CHOICE PROBLEMS