Cost Accounting Cycle
> Various systematic step
> will be focusing in Manufacturing type of business
Manufacturing business
Inventories
Raw Materials
Inventory
> also known as:
: Materials Inventory
Control Account
: Direct Materials
Inventory
: Materials Inventory
Account
> This account is
made up of the
balances of
materials (direct
materials) and
supplies on hand
(indirect materials)
- there is a special
computation if the
two were included
(DM and indirect
materials)
- we need to deduct
indirect materials in
computing direct
materials used to
come up with the
actual materials
used
> this account is
maintained in as
much the same as
the merchandise
inventory account in
terms of acquisition,
through purchase.
> unlike
merchandise
inventory, materials
are usually
purchased for use in
manufacturing a
product
Work-in-process
Inventory
> also known as:
: Work in
progress
inventory
account (WIP)
> This account is
made up of all
manufacturing
costs incurred
and assigned to
products being
produced or
those units that
still not fully
completed
> this account
has no
counterpart in
merchandising
business
Manufacturing cost
Finished goods
Inventory
> this account
is made up of
all costs
completed but
unsold as of
specific date
- kapag sold na
then COGS
> this account
is maintained
in as much the
same as the
merchandise
inventory
account in a
way that this
account is also
decreased for
every
inventory
account sold
during the
period
Direct Materials
Traceable sa
end products
Direct Labor
Factory
overhead
Raw materials
Beg Balance
XX Issued to production
Purchases
XX Returned to vendor
Returned from production XX
Ending Balance
XX
XX
XX
Work-in-process Inventory
Beg Balance
Issuance of materials
to production
Direct labor incurred
Overhead cost incurred
XX
XX
XX
XX
Ending Balance
XX
Completed units
XX
Returned from production XX
Finished goods Inventory
Beg Balance
XX Units Sold
Completed units
XX
Returned from customers XX
Ending Balance
XX
XX
FOH Control
> this account is used for recording
ACTUAL overhead costs during the
period
> normal balance is debit
FOH Applied
> this account is used for recording
APPLIED/ALLOCATED/ASSIGNED
overhead costs during the period
using a pre-determined overhead
rate
> normal balance is credit
- based on past events, experience,
transaction, estimation
At the end of the period, FOH Control and FOH Applied balances should be
compared and the variance shall be analyzed
FOH Actual > FOH Applied
FOH Actual < FOH Applied
 Under applied
 Over applied
 Unfavorable
 Favorable
 Increases COGS
 Decreases COGS
 Decreases Gross profit
 Increases Gross Profit
 Decreases Profit
 Increases Profit
Net under/over applied FOH is closed to COGS.
If it has discrepancy, then close it to COGS
If the amount is significant/material, it is closed to COGS, finished goods and
work in process based on ending balances
> how to know if it is significant or material
Will based on the amounts
COGS = 2k
Discrepancy = 1k
Significant, yes
> how to close it in COGS, finished goods and work in process?
by using of Pro-rate of ending balances
example:
COGS 2k 2/6
FG
3k 3/6
WIP
1k 1/6
6k
Kaya walang RM kase wala syang component ni FOH, so yung 3 lang yung need
iadjust
> Hindi binigay yung FOH Applied kaya need magcompute
FOH applied = Predetermined FOH rate x Actual Activity (direct labor hours)
> But, hindi rin binigay si Predetermined rate
Predetermined FOH rate = budgeted FOH / Budgeted DLH
Predetermined FOH rate = 720,000 / 600,000
= 1.2 per DLH
FOH applied = Predetermined FOH rate x Actual Activity (direct labor hours)
= 1.2 x 550,000
= 660,000
FOH Actual < FOH Applied
FOH Applied 660,000
FOH Actual 640,000
Overapplied 20,000
Balance
%
Allocation
Total
WIP
15,000
15 (15k/100kx100) 1,500 (10k overheadx15%)
13,500 (15k-1,500)
FG
35,000
35
3,500
31,500
COGS
50,000
50
5,000
45,000
Total
100,000
100
20,000
90,000
Beg Materials Inventory
XX
Net Materials Purchases:
Gross Purchases
XX
Purchase Discount
(XX)
Purchase Returns
(XX)
XX
Total Materials Available for use
XX
End Materials Inventory
(XX)
Materials Used
XX
Direct Labor
XX
Factory Overhead (Applied)
XX
Total Manufacturing Cost
XX
Beg Work in Process Inventory
XX
Total cost put into process
XX
End Work in Process Inventory
XX
Cost of Goods Manufactured
XX
Beg Finished Goods Inventory
XX
Total Goods Available for Sale
XX
End Finished Goods Inventory
XX
Cost of Goods Sold
XX