COST ACCOUNTING AND COST MANAGEMENT 1 1
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
REVIEW OF THE NON-COST SYSTEM
Non-cost accounting system – the accounting system adopted by the management of
a manufacturing firm if they are interested only in the total production cost and the
year-end financial statements
NATURE AND CHARACTERISTICS OF A MANUFACTURING FIRM
Manufacturing firms
- Buys raw materials to convert them
into finished goods with the use of
manpower and plant facilities.
- Upon completion, the goods are
transferred to the stockroom for
delivery to customers
-
Trading firms
Merely procures goods from manufacturers
or from other traders
In general, a manufacturing firm requires a longer period to make goods available
as compared to a trading concern
Plant facilities – generally consist of machinery, equipment and furniture housed in an
edifice called the factory building which may be owned or leased by the company.
Employees – include factory workers who are directly supervised by foremen (may
be reporting directly to the production manager).
In bigger companies, the production division may be divided into different departments.
These departments may be classified into:
-
-
A. Producing Departments – where actual manufacturing operations are
performed and
 Examples:
 Machining Department
 Assembling Department
 Painting Department
B. Service Departments – which facilitate the manufacturing processes by
rendering services to the producing departments and other service departments
 Examples:
 Materials handling
 Building maintenance

Power departments
The manufacturing process is repeated throughout the year with the volume of output
dependent on the estimated demand for the product.
Flow of Cost – this term refers to the movement of items of cost.
See illustration on the next page.
FLOW OF COST IN A MANUFACTURING FIRM
COST ACCOUNTING AND COST MANAGEMENT 1 2
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Stockroom
Finished Goods Invty., Beg.
Cost of Goods manufactured
Finished goods available for sale
Finished goods invty., end
Cost of Goods Sold
P xxx
xxx
P xxx
(xxx)
P xxx
Customers
Accounts Receivable (at selling price
Cost of Goods Sold ( at cost)
Producing Departments
Work in process invty., beg.
P xxx
Manufacturing cost:
Materials cost
P xxx
Labor cost
xxx
Factory overhead
xxx
xxx
P xxx
Work in process invty., end
(xxx)
P xxx
Cost of goods manufactured
Materials
Labor
Factory Overhead
Materials are placed in process with labor and factory overhead added to convert them
into finished goods.
While still uncompleted, the goods are called work in process.
Upon sale of finished goods, they become part of cost of goods sold which is matched
against revenue in income measurement.
THE NON-COST SYSTEM
Under the non-cost system,
-
-
-
Flow of cost is not accounted for in detail.
Periodic inventory method is used - so that cost of goods manufactured and
cost of goods sold can only be arrived at after an inventory taking of raw materials,
work in process and finished goods.
Paper work is minimal – perpetual records of the flow of cost are non-existent.
Product unit cost = Cost of Goods Manufactured
Total number of units produced
Not expensive to maintain inasmuch as internal transactions are not recorded and
volume of paper work is not as much as that under the cost system.
Ineffective in controlling costs and in assisting management in the decision
making process considering the delay in the determination of unit and inventory
costs.
o May even result in
 undetected pilferages of materials,
 unnecessary wastages
 inefficiency of manpower
Note: The voucher system may be used under both non-cost and cost
systems inasmuch as it is a tool in controlling payables and disbursements and
does not affect inventory accounts.
MATERIALS COST
COST ACCOUNTING AND COST MANAGEMENT 1 3
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
-
Refers to the cost of the different items needed to produce the finished product.
Examples:
o Lumber, varnish and glue in the manufacture of furniture
o Metal parts, lubricant and paint in car assembly
o Sulphate ammonia and superphosphate in making fertilizer
LABOR COST
-
-
Refers to the cost of labor expended in the manufacturing processes.
Under non-cost system, the account “factory salaries and wages” often
substitutes for labor cost
Examples:
o Wages of sewers (in garments factory)
o Wages of Carpenters ( in housing projects)
o Wages of lathe machine operators ( in machine shops)
Payroll Account- a temporary account used for the total amount earned by
employees.
o Its use facilitates the recording of payroll vouchers pending their analysis and
subsequent recording of their breakdowns.
MANUFACTURING EXPENSES ( Factory overhead / Factory burden)
-
Refers to the different factory costs not classified as raw materials or as labor cost.
Examples:
Factory supplies –
Depreciation –
Depreciation –
refers to those items that are used in keeping the
factory in workable condition and the machinery, in
working condition.
Examples:
Rags,
floor wax,
lubricants,
deodorants
factory building
factory machinery and equipment
brushes,
room
Factory employee benefits – this account is charged for all the cost of
benefits accruing to factory employees such as the
employers’ contributions for SSS and cost of vacation
and sick leaves.
The employers’ contributions to SSS, Medicare and Pag-IBIG and the
employees compensation premiums may also be charged to “ SSS
Contributions”,
Medicare
Contributions”,
“Pag-IBIG
Contributions”
and
“Employees’
Compensation
Premiums”,
respectively.
Each manufacturing expense account may be provided for in the general ledger or
a controlling account (such as factory overhead, manufacturing expenses or
factory burden) may be used.
Factory Overhead Control – This account is used as a controlling account for all
factory overhead items so that it must be supported
by subsidiary records often called the factory
overhead analysis sheet.

-
INVENTORIES IN A MANUFACTURING FIRM
Comparison of inventory accounts: Manufacturing vs Trading Firms
Manufacturing firms
Trading firms
COST ACCOUNTING AND COST MANAGEMENT 1 4
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
-
-
-
Raw Materials Inventory – consists of all
the items of materials that are needed in
the manufacture of the finished product
Work in Process Inventory – refers to
goods still in the factory and not yet
completed
Finished Goods Inventory – refers to
goods already processed and are ready for
sale.
- Merchandise Inventory ( goods
purchased and made available for
sale)
Cost of Goods Sold –
generally used for the items manufactured and sold.
Cost of Sales –
terms used for items sold in a trading business.
In computing for cost of goods sold, cost of goods
manufactured substitutes for net purchases
Cost of Goods Manufactured –
Materials Used –
arrived at by deducting the accumulated cost of
ending work in process from the total of
manufacturing (or factory) costs incurred during a
period and cost of beginning work in process. (Refer
to the illustration)
arrived at by deducting the ending inventory of raw
materials from total raw materials available for use.
(Refer to the illustration on the next page)
<
EQUATIONS IN THE STATEMENT OF COST OF GOODS SOLD
Based on the discussions in the preceding paragraphs, the equations must be as follows:
Materials invty., beg.
Work in process invty., beg
Net purchases
Direct labor cost
Factory overhead
Cost of Goods Manufactured
Finished goods invty., beg.
} {
} {
Materials invty., end.
Work in process invty., end
=
Cost of goods manufactured
Finished goods invty., end
Cost of goods sold
=
The foregoing equations are observed in the preparation of the manufacturing worksheet and
can serve as guides in solving problems with unknowns.
Illustration: Comparison of Cost of Goods Sold of Manufacturing Firm and Cost of Sales
of Trading/Merchandising firm
COST OF GOODS SOLD –
Manufacturing firms
Hangya Manufacturing Corp.
Statement of Cost of Goods Sold
For the Year Ended December 31, 2013
COST OF SALES –
Merchandising/Trading firms
ABC Trading Co.
Cost of Sales
For the Year Ended December 31,
2013
COST ACCOUNTING AND COST MANAGEMENT 1 5
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Raw materials cost
Inventory, Jan 1
P
8,500
Add: Net Purchases
Purchases
P 50,000
Add: Freight-in
1,200
Less: Purchase Returns and allo
2,500
48,700
Raw
materials
available
for
use
P57,200
Less:
Inventory,
Dec
31
6,000
Raw materials used
P51,200
Labor Cost
13,400
Factory Overhead/ Manufacturing expenses:
Depreciation expense
P 19,000
Factory repairs
6,000
Employees’ benefits
1,200
Factory supplies
1,500
27,700
Manufacturing Cost
P 92,300
Add: Work in Process Invty., Jan 1
10,000
Total Goods Placed in Process
P102,300
Less: Work in Process Invty., Dec 31
12,500
COST OF GOODS MANUFACTURED
P
89,800
Add: Finished Goods Inventory, Jan 1
5,500
Total Goods Available for Sale
P
95,300
Less:
Finished
Goods
Inventory,
Dec.
31
9,000
COST OF GOODS SOLD
P
86,300
Merchandise Invty., Jan 1
P5,000
Add: Net Purchases
Purchases
P50,000
Add: Freight in
2,000
Less: Purchase ret. 1,000
51,000
Total Goods Available for Sale P
56,000
Less: Merchandise Invty. Dec 31
7,000
COST OF SALES
P
49,000
In computing for unit cost, the figure for cost of goods manufactured is simply divided by the
number of produced so that if there were 10,000 units of output, unit cost must be 8.98 (89,800
divided by 10,000 units).
CHART OF ACCOUNTS FOR A MANUFACTURING FIRM, NON-COST SYSTEM
-
A list of all the account titles to be used in recording a company’s transactions.
Classified and listed based on the position of each in the financial statements
SAMPLE CHART OF ACCOUNTS, NON-COST SYSTEM
CHART OF ACCOUNTS FOR A MANUFACTURING FIRM
Balance Sheet Accounts (10-99)
Assets ( 10-99 )
Current Assets (10-99)
11
Cash in Bank
44.1
Accumulated Depreciation –
Machinery and Equipment – Factory
12
Cash on Hand
46
Delivery Equipment
13
Petty Cash Fund
46.1
Accumulated Depreciation – Delivery
Equipment
14
Marketable Securities
51
Automobiles
15
Notes Receivable
52
Accumulated Depreciation –
Automobiles
COST ACCOUNTING AND COST MANAGEMENT 1 6
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
15-1
16
Notes Receivable – Discounted
Accounts Receivable
16-1
Accounts Receivable
20
Finished Goods inventory
21
Work in Process Inventory
22
Materials inventory
26
Prepaid Insurance
39
Miscellaneous Prepaid Items
Plant, Property and Equipment (40-69)
41
Land
42
Buildings
42.1
Accumulated Depreciation –
Buildings
44
Machinery and Equipment –
Factory
Current
101
102
103
104
105
106
107
108
109
110
116
121
Office furniture and fixtures
Accumulated Depreciation – Office
Furniture and Fixtures
Intangible Assests (70-79)
71
Goodwill
72
Patents
79
Other Intangible Assets
Other Assets (80-89)
Other Assets (90-99)
Liabilities and Capital (100-199)
Long-Term Liabilities (150-169)
151
Loans Payable
156
Other Long-Term Debt
Liabilities (100-149)
Noted Payable
Accounts Payable
Vouchers Payable
Accrued Payroll
Other Accrued Liabilities
Withholding Taxes Payable
Medicare Contributions Payable
Pagibig Contributions Payable
Compensation Insurance Payable
Estimated Income Tax Payable
Long- Term Due Within One Year
Dividends Payable
Income Statement
Sales (200-249)
201
Sales
201.1
Sales Returns and Allowances
201.2
Sales Discounts
Cost of Goods Manufactured (250-269)
251
251
252
253
56
56.1
Cost of Goods Manufactured
Materials Purchases
Purchase Returns and Allowances
Freight In
Capital (170-199)
171
Preferred Stock
172
Common Stock
172.1
Treasury Stock
176
Premium on Preferred Stock
177
Premium on Common Stock
191
Retained Earnings
Accounts (200- 699)
429
431
435
436
437
451
452
499
Insurance Expense
Store Supplies
Gasoline and Oil
Repairs and Maintenance-Buildings
Repairs and Maintenance – Delivery
Van
Depreciation Expense – Buildings
Depreciation Expense – Delivery Van
Miscellaneous Selling Expense
General and Administrative Expense (500599)
Cost of Goods Sold (270-299)
251
Cost of Goods Sold
501
Factory
301
302
306
316
317
318
319
502
503
504
516
517
518
519
525
526
General and Administrative Expense
Control
Salaries-General and Administrative
Salaries – Clerical Help
Overtime Premium
SSS Contributions
Medicare Contributions
Pag-ibig Contributions
Employees’ Compensation Premiums
Telephone and Telegraph
Light, Power and Water
529
531
535
Insurance Expense
Office Supplies
Gasoline and Oil- Buildings
325
326
329
Overhead ( 300-399)
Factory Overhead Control
Salaries-Factory
Overtime Premium
SSS Contributions
Medicare Contributions
Pagibig contributions
Employees’ Compensation
Premiums
Telephone and Telegraph
Light, Power and Water
Insurance Expense
COST ACCOUNTING AND COST MANAGEMENT 1 7
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
331
335
Factory Supplies
Fuel
536
537
336
Repairs and Maintenance –
Buildings
Repairs and Maintenance –
Machinery and Equipment
Depreciation Expense- Buildings
551
337
351
352
Depreciation Expense- Machinery
and Equipment
Miscellaneous Factory Overhead
399
Selling
401
402
403
404
405
411
416
417
418
419
425
426
Expenses (400-499)
Selling Expenses Control
Salaries – Sales Supervision
Salaries – Salesgirls
Salaries – Clerical Help
Sales Commissions
Delivery Expense
SSS Contributions
Medicare Contributions
Pagibig Contributions
Employees’ Compensation
Premiums
Telephone and Telegraph
Light, Power and Water
Repairs and Maintenance – Buildings
Repairs and Maintenance – Office
Furniture and Fixtures
Depreciation Expense – Buildings
552
Depreciation Expense – office
Furniture and Fixtures
599
Miscellaneous General and
Administrative Expenses
Other Income (600-619)
601
602
603
604
605
Income from Investments
Interest Income
Rental Income
Commission Income
Miscellaneous Income
Other Expense (620-629)
621
Interest Expense
Income Deductions (630-639)
631
Provisions for Income Tax
Temporary Account
700
Payroll
JOURNAL ENTRIES UNDER THE NON-COST SYSTEM
The entries under the non-cost system are the following
a.
b.
Materials purchases on account by Hangya Mfg. Corp for 2013 amount to P 50,000.
P
Materials Purchases
50,000.00
P
Vouchers Payable
50,000.00
Purchase returns and allowances, P 2,500.
Vouchers Payable
c.
2,500.00
Purchase Returns and Allo.
Freight in P 1,200.
Freight in
2,500.00
1,200.00
Vouchers Payable
1,200.00
Payment of payroll for P 22,400, net of the following deductions: withholding taxes - P
d. 2,200;
SSS premiums - P 1,100; medicare premiums - P 500; Pag-IBIG - P 300; advances to
employees - P 700;
and union check-off - P 1,200.
Payroll
28,400.00
Withholding Taxes Payable
2,200.00
SSS Premiums Payable
1,100.00
Medicare Premiums Payable
500.00
Pag-IBIG Premiums Payable
300.00
Advances to Employees
700.00
COST ACCOUNTING AND COST MANAGEMENT 1 8
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Union Fees Payable
1,200.00
Vouchers Payable
22,400.00
Vouchers Payable
e.
f.
22,400.00
Cash
22,400.00
Breakdown of the payroll: Factory - P 13,400; sales - P 8,000; and, office - P 7,000.
Factory Salaries and Wages
13,400.00
Sales Salaries and Wages
8,000.00
Office Salaries and Wages
7,000.00
Payroll
28,400.00
Payment of the following: factory supplies - P 1,500; factory repairs - P 6,000; and,
store furniture P 12,000.
Factory Supplies
1,500.00
Factory Repairs
6,000.00
Store Furniture
12,000.00
Vouchers Payable
Vouchers Payable
g
.
19,500.00
19,500.00
Cash
19,500.00
Remittance of SSS, Medicare and Pag-IBIG premiums together with the employer's
counterpart
contributions and workmen's compnesation insurance premiums ( SSS - P 1,300;
Medicare - P 500;
Pag-IBIG - P 300; and compensation premiums - P 300). The employer's contributions
are to be
charged as follows: factory - 50%; office - 30%; and sales, 20%.
Employees' Benefits - Factory
1,200.00
Employees' Benefits – Sales
720.00
Employees' Benefits – Office
480.00
SSS Premiums Payable
1,300.00
Medicare Premiums Payable
500.00
Pag-IBIG Premiums Payable
300.00
Workmen's Compensation Premiums Payable
300.00
SSS Premiums Payable
2,400.00
Medicare Premiums Payable
1,000.00
Pag-IBIG Premiums Payable
600.00
Workmen's Compensation Premiums Payable
300.00
Vouchers Payable
Vouchers Payable
Cash
4,300.00
4,300.00
COST ACCOUNTING AND COST MANAGEMENT 1 9
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
4,300.00
h
.
Sales, P 150,000
Accounts Receivable
i.
150,000.00
Sales
Sales returns and allowances, P 5,500
150,000.00
Sales returns and allowances
j.
5,500.00
Accounts Receivable
5,500.00
Payment of the following expenses: office supplies - P 600; advertisements - P 800;
delivery expense
P 2,000; rentals for store space - P 3,000; and, rentals for office space - P 2,000.
Office Supplies Expense
600.00
Advertising Expense
800.00
Delivery Expense
2,000.00
Rent Expense – Sales
3,000.00
Rent Expense – Office
2,000.00
Vouchers Payable
k.
8,400.00
Vouchers Payable
8,400.00
Cash
8,400.00
Provision for depreciation: factory building - P 11,000; factory machinery and
equipment - P 8,000;
store furniture - P 4,500; and, office furniture and equipment - P 5,000.
Depreciation Expense – Factory
19,000.00
Depreciation Expense – Sales
4,500.00
Depreciation Expense – Office
5,000.00
Accum. Depn – Factory Bldg.
11,000.00
Accum. Depn – Factory Machinery and Equipment
8,000.00
Accum. Depn – Store Furniture
4,500.00
Accum. Depn – Office Furniture and Equipment
5,000.00
The closing entries are made considering the following inventory figures:
Raw Materials
Work in Process
Finished Goods
l.
January 1
P 8,500
10,000
5,500
December 31
P 6,000
12,500
9,000
To close the manufacturing accounts and take up the ending inventories of raw
Manufacturing Summary ( or Cost of goods manufactured)
89,800.00
Work in Process Inventory, Dec 31
12,500.00
Raw Materials Inventory, Dec 31
6,000.00
Purchase Returns and Allo.
2,500.00
COST ACCOUNTING AND COST MANAGEMENT 1 10
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Work in Process Inventory, Jan 1
Raw Materials Inventory, Jan 1
Raw Materials Purchases
Freight
In
Factory Salaries and Wages
Employees' Benefits – Factory
Factory Supplies
Factory Repairs
Depreciation Expense - Factory
m
.
10,000.00
8,500.00
50,000.00
1,200.00
13,400.00
1,200.00
1,500.00
6,000.00
19,000.00
To set up cost of goods sold:
Cost of Goods Sold
86,300.00
Finished Goods Inventory, Dec 31
Finished Goods Inventory, Jan 1
Manufacturing Summary (Cost of Goods Manufactured)
9,000.00
5,500.00
89,800.00
n.
To close the remaining nominal accounts to income and expense summary:
Sales
150,000.00
Cost of Goods Sold
86,300.00
Sales Return and Allo
5,500.00
Sales Salaries and Wages
8,000.00
Office Salaries and Wages
7,000.00
Employees' Benefits – Sales
720.00
Employees' Benefits - Office
480.00
Rent Expense – Sales
3,000.00
Rent Expense – Office
2,000.00
Office Supplies Expense
600.00
Advertising Expense
800.00
Delivery Expense
2,000.00
Depreciation Expense – Sales
4,500.00
Depreciation Expense – Office
5,000.00
Income and Expense Summary
24,100.00
o.
To close net income to retained earnings:
Income and Expense Summary
24,100.00
Retained Earnings
24,100.00
Instead of entries l, m and n, the accounts may simply be closed to income and
expense summary as follows:
Finished Goods Inventory, Dec 31
9,000.00
Work in Process Inventory, Dec 31
12,500.00
Raw Materials Inventory, Dec 31
6,000.00
Sales
150,000.00
Purchase Returns and Allo.
2,500.00
Sales Returns and Allo.
5,500.00
Finished Goods Inventory, Jan 1
5,500.00
Work in Process Inventory, Jan
1
10,000.00
Raw Materials Inventory, Jan 1
8,500.00
COST ACCOUNTING AND COST MANAGEMENT 1 11
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Raw Materials Purchases
Freight
In
Factory Salaries and Wages
Employees' Benefits - Factory
Factory Supplies
Factory Repairs
Depreciation Expense - Factory
Sales Salaries and Wages
Office Salaries and Wages
Employees' Benefits – Sales
Employees' Benefits - Office
Rent Expense – Sales
Rent Expense – Office
Office Supplies Expense
Advertising Expense
Delivery Expense
Depreciation Expense - Sales
Depreciation Expense - Office
Income and Expense Summary
50,000.00
1,200.00
13,400.00
1,200.00
1,500.00
6,000.00
19,000.00
8,000.00
7,000.00
720.00
480.00
3,000.00
2,000.00
600.00
800.00
2,000.00
4,500.00
5,000.00
24,100.00
EXERCISES
Exercise1: Theory (True or False)
1. Manufacturing costs are materials cost, labor cost, factory overhead, and manufacturing
expenses.
2. The periodic inventory method is used under the non-cost system so that cost of raw
materials used, cost of goods manufactured, and cost of goods sold can be easily
determined without the need for a physical count of the resources.
3. Under the cost system, the raw materials cost figure is apt to include some items of
materials even if they do not form part of the finished product.
COST ACCOUNTING AND COST MANAGEMENT 1 12
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
4. Under the non-cost system, unit cost for the current production cannot be promptly
estimated because of inadequate paper work.
5. There must be a decrease in raw materials inventory when raw materials purchases
exceed cost of materials used.
6. Cost of goods sold that exceeds cost of goods manufactured results in a decrease in
finished goods inventory.
7. The synonyms for factory overhead are manufacturing expenses and factory expenses.
8. In the preparation of the manufacturing worksheet, beginning inventories of raw materials
and work in process are debits while the ending inventories are credits.
9. In the preparation of the manufacturing worksheet, all items that are added in the
statement of cost of goods manufactured are extended as debits and all items that are
deducted, as credits.
10. Under the non-cost system, journal entries are made for issuances of materials and
completion of goods.
11. Examples of factory overhead are supervision, depreciation of factory machinery and
factory fuel and oil.
12. Pilferages of materials and smuggling out of finished goods cannot be easily detected
under a non-cost system.
Exercise 2. Equations in the Statement of Cost of Goods Sold
Compute for the unknown or unknowns in each of the following cases:
Case A
P
Cost of goods manufactured
15,000
Cost of goods sold
25,000
Finished goods invty., Jan 1
22,500
Finished goods invty., Dec 31
?
Case B
Net purchases
?
Work in process invty., Jan 1
?
Work in process invty., Dec 31
15,500
Raw materials used ( 60% of mfg. costs)
?
Raw materials invty., Jan 1
7,500
Raw materials invty., Dec 31
9,000
Cost of goods manufactured
73,000
Labor cost
17,500
Factory overhead
12,500
C ase C
Cost of goods manufactured
35,000
Work in process invty., Jan 1
8,000
Work in process invty., Dec 31
?
Raw materials used
20,000
Labor cost
10,000
Factory overhead ( 50% of prime cost)
?
Case D
Cost of goods manufactured
52,500
Cost of goods sold
?
Raw materials used
25,000
Factory overhead
?
( Work in process inventory decreased by P 10,000 while finished goods
inventory
increased by P 7,500. Labor cost is 50% of raw materials
used.)
Case E
Finished goods invty., Jan 1
P 10,000
Finished goods invty., Dec 31
6,000
Raw materials used
37,500
Labor cost
17,500
COST ACCOUNTING AND COST MANAGEMENT 1 13
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
Factory overhead
16,000
Cost of goods sold
78,000
Work in process invty., Jan 1
?
Work in process invty., Dec 31
?
(Ending work in process inventory is 10% of cost of goods manufactured.)
Exercise 3: Journal Entries
Make the journal entries for Durian Mfg. Co. Based on the following information. The firm
has adopted the voucher system.
a. Materials purchases, P 37,500.
b. Purchase returns and allowances, P 2,500
c. Payroll:
Total
P 32,500
Deductions:
SSS premiums
P 875
PhilHealth
415
Pag-Ibig
150
Withholding taxes
600
Advances to employees
3,250
Union check-off
1,500
6,790
Net amount
P 25,710
d. Breakdown of the payroll: factory, 55%, sales, 25% and office, 20%.
e. Disbursements made:
Insurance premiums – factory building and contents
P 1,250
Lubricants, rags, brooms and insecticide
500
Meralco bill
2,050
Manila Water bill
1,000
(Shares of office and sales in light, power and water expenses are P 200 and P 150,
respectively).
f. Sales on account, P 150,000.
g. Sales returns and allowances, P 3,000.
h. Payments:
Computer ink, pencils, and other office supplies P 900
TV and radio advertisements
3,000
Plastic bags, masking tape and other store su pplies
1,000
i. The premium for employees’ compensation (EC) insurance of P 300 and the employer’s
counter part contributions for the following are taken up : SSS, P 1,000, PhilHealth, P 550,
Pag-IBIG, P150. Distribution: factory, 60%, sales, 30% and office, 10%.
j. The total contributions to SSS, PhilHealth and Pag-IBIG and the EC premiums are remitted
to the respective offices.
k. Income taxes withheld are remitted to the BIR.
l. Collections from customers, P 90,000.
m. Depreciation charges: factory building, P 7,000; factory machinery and equipment, P
3,000; office furniture and equipment, P 2,500; delivery van, P 2,300; and, store furniture,
P 2,000.
n. Accrual of salaries and wages: factory – P 3,000; sales, P 1,500, and office – P 800.
o. Ending inventories:
Raw materials
P 10,000
Work in process
7,500
Finished goods
9,500
p. The beginning inventories are closed:
Raw materials
P 9,000
Work in process
8,500
Finished goods
5,000
q. The remaining manufacturing accounts are closed.
r. The remaining nominal accounts are closed.
s. The profit and loss summary account is closed to retained earnings.
Multiple Choice.
COST ACCOUNTING AND COST MANAGEMENT 1 14
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
1. You are given the following data on the operations of Sunny Mfg. Corp:
Raw materials used
Factory overhead
Work in process invty., Jan 1
Work in process invty., Dec 31
Finished goods invty., Jan 1
Finished goods invty., Dec 31
Cost per unit
P 129,000
80,000
35,000
42,000
18,000
28,000
20
Number of units sold, 12,500
How much is labor cost?
a. P 58,000
b. P 38,000
c. P 24,000
d. Not given
2 The following data are given by Domestic Mfg. Corp.:
Increased in finished goods
invty.
P 12,000
Decrease in raw materials invty.
10,000
Increase in work in process
invty.
5,000
Purchase returns and allo.
6,000
Freight in
7,000
Labor cost
65,000
Factory overhead
25,000
Cost of goods sold
153,000
How much must be raw materials purchases?
a. P 57,000
b.
P 69,000
c. P 55,000
d. not given
The following information is proviided by Maunlad Mfg.
3 Corp:
P
Cost of goods manufactured
470,000
Labor cost
100,000
Factory overhead
50,000
Finished goods, beg
30,000
Finished goods, end
20,000
Cost of goods sold
480,000
Raw materials used
500% of work in process, end
Work in process, end
75% of work in process, beg
Raw materials used must be:
P
P
290,000
c. 450,000
d. not given
a. P 300,000
b.
4 Golden Manufacturers provides you with the following data:
P
Cost of goods sold
360,000
Raw materials used
150,000
Labor cost
100,000
Factory overhead
100,000
Ending inventory of work in process(B) and beginninng inventory of finished goods (C)inventories
Cost of goods manufactured is:
P
P
a. P 340,000
b.
350,000
c. 380,000
d. not given
The totals on the manfacturing work sheet prior to the inclusion of ending inventories are as
5 follows:
Dr
Cr
210,000.
Manufacturing
00
3,600.00
35,000.0
Cost of goods sold
0
95,000.0 310,000.
Income statement
0
00
Balance sheet
? 360,000.
COST ACCOUNTING AND COST MANAGEMENT 1 15
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
00
The ending inventories are: raw materials - P 38,000; work in process - P 50,000; and finished
goods inventory, P 25,000.
How much must be cost of goods manufactured, cost of goods sold and net
income?
Manufactured
Sold
Net income
P
a.
P 68,400
166,400
21,500
(226,40
b.
206,400
153,400
0)
c.
118,400
128,400
86,600
d. Answer not given
6 The following information was taken from Cody Co.'s accounting records for 2013:
Decrease in raw materials inventory
P 15,000
Increase in finished goods inventory
35,000
Raw materials purchased
430,000
Direct labor payroll
200,000
Factory overhead
300,000
Freight out
45,000
There was no wok in process inventory at the beginning or at the end of the year. Cody's cost of
goods sold for 2013 is
P
P
a. P 895,000
b.
910,000
c. 950,000
d. P 955,000
7 How much is the unit cost of the sole product of the company based on the following information?
P
Factory overhead
35,000
Increase in raw materials
inventory
8,000
Sales
120,000
Decrease in work in process inventory
10,000
Gross profit based on sales
30%
Percentage of cost of goods sold based on cost of goods
manufactured
105%
Output
160,000 units
a.
P .525
b.
P .50
c.
P . 605
d. None of the above
8 The footings on a manufacturing work sheet ( prior to adjustments and extension of the balances
Dr
Cr
P
P
Manufacturing
158,000
39,000
Cost of goods sold
25,000
26,000
Income statement
63,000
245,000
The following adjustments have not yet been included in the working
paper:
* Unused factory supplies, P 2,600, still included in factory supplies expense
* Unrecorded purchase returns, P 15,000
* Bad debts, P 12,000
* Understatement in finished goods inventory, P 8,000
How much should be the net income
a. P 72,400
9
b.
P 77,600
c.
P
93,600
d. None of the above
COST ACCOUNTING AND COST MANAGEMENT 1 16
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM
1
0
How much should be the net change in finished goods inventory based on the following
information?
Increase in raw materials inventory
P 8,000
Decrease in work in process inventory
11,000
Direct labor cost
55,000
Factory overhead
30,000
Raw materials purchases
85,000
Freight in
7,000
Purchase returns and allowances
9,500
Freight out
2,500
Sales
275,000
Gross profit percentage (based on cost)
66.67%
a. Increase by P 5,500
c. Decrease by P 5,500
b. Decrease by P 21,500
d. None of the above
Product unit cost is P 35. Determine the amount of net purchases based on the following
information:
Increased in finished goods inventory
P 9,000
Decrease in work in process inventory
5,000
Increase in raw materials inventory
6,000
Direct labor cost
80,000
Factory overhead
64,000
Sales
420,000
Gross profit based on sales
50%
a. P 150,000
b. P 76,000
c. P 146,000
d. None of the above