Colegio de San Gabriel Arcangel

Area E, City of San Jose del Monte, Bulacan

Unit Title: Cost Accounting Cycle

Title of the Lesson: System of Cost Accumulation
Duration: 3 hours
Introduction:
This Module will cover the Cost Accounting Cycle which embraces activities
connected with verification and preparation of source documents, their journalizing, then
posting  control accounts and subsidiary ledgers, closing of accounts and presenting
results of operations of accounting period in the form of the income statement.
Accounting period means the time period covered by an income statement.

Generally, cost accounting department prepares income statement on monthly

basis. As the length of a month varies from 28 days to 31 days, cost accountants,
sometimes divide the year into 13 equal periods of 4 weeks thus making the income
statements and other reports more comparable. It is common to take one month as
accounting period to demonstrate cost accounting cycle.

The accounting cycle ensures that all accounts are updated and maintained so

all payments owed to the company are addressed. This is important since the accounts
receivable representatives will get the company's owed funding to keep the finances
balanced.

Objectives / Competencies:
At the end of the session, the learner will be able to:
1. Describe cost accounting cycle
2. Illustrate basic cost accounting procedures using actual and normal method
of accumulating costs
3. Compute product cost using actual and normal costing
4. Journalize acquisition and issuance of raw materials; incurrence and
distribution of factory labor and overhead
5. Prepare statement of cost of goods manufactured and sold

Pretest
Multiple choice. Select your answer by encircling the letter of the correct answer.
1. Which of the following manufacturers is most likely to use a job order accounting
system?
a. a brewery
b. a ship builder of oil tankers
c. an oil refinery
d. a sugar refinery
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2. In a job order cost accounting system, which account would be debited in
recording a purchase invoice for raw materials?
a. Raw materials inventory
b. Goods in process inventory
c. Factory overhead
d. Finished goods inventory

3. In a job order cost accounting system, which account would be debited in

recording a materials requisition for direct materials?
a. Raw materials inventory
b. Factory overhead
c. Raw materials purchases
d. Goods in process inventory

4. Many firms use two overhead accounts: factory overhead control and factory
overhead applied. During the period, which account receives numerous debits
and credits?
a. Factory overhead applied
b. Factory overhead control
c. Both a and b
d. Neither a or b
5. In job order cost system, the use of direct materials previously purchased usually
is recorded as an increase in:
a. Work in process account
b. Factory overhead account
c. Factory overhead applied account
d. Materials account

6. In traditional job order cost system, the issue of indirect materials to a production
department increase:
a. Materials account
b. Factory overhead account
c. Work in process account
d. Factory overhead applied account

7. Which of the following items is not included in factory overhead?

a. Factory depreciation and supplies
b. Costs of service department
c. Costs of marketing department
d. Cost of maintenance department

8. In job order cost system, direct labor costs usually are recorded initially as an
increase in:
a. Factory overhead applied
b. Factory overhead control
c. Finished goods
d. Work in process

9. Under a job order system of cost accounting, the peso amount of the general
ledger entry involved in the transfer of inventory from work in process to finished
goods is the sum of the costs charged to all jobs:
a. Started in process during the period
b. In process during the period
c. Completed and sold during the
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 period
d. Completed during the period

10. Direct materials used: P20,000, Factory overhead: P40,000, Beginning goods in
process: P0, Ending goods in process: P12,000, Cost of goods manufactured:
P65,000, What was the amount of direct labor?
a. P17,000
b. P77,000
c. P5,000
d. P48,000

11. A company services office equipment. Some customers bring their equipment to
the company’s service shop; other customers prefer to have the company’s
service personnel come to their offices to repair their equipment. The most
appropriate costing method for the company is _______________.

a. A job order costing system

b. An activity based costing system
c. A process costing system
d. An operation costing system

12. The work in process account is:

a. Neither a real or a nominal account
b. An inventory account indicating the beginning and ending inventory of goods
being processed.
c. A hybrid account (both real and a nominal account)
d. A nominal account to which indirect costs are charged as incurred and credited
as these costs are charged to production.

13. When the amount of overapplied factory overhead is significant, the entry to
close overapplied factory overhead will most likely require:
a. A debit to cost of goods sold
b. Debit to cost of goods sold, finished goods and work in process
c. A credit to finished goods
d. Credit to cost of goods sold, finished goods and work in process

14. In a job cost system, factory overhead is

a. Indirect cost – no , Product cost – yes
b. Indirect cost – n0 , Product cost – no
c. Indirect cost – yes , Product cost – yes
d. Indirect cost – yes , Product cost – no

15. In a job cost system, factory overhead is

a. Indirect cost – no , Product cost – yes
b. Indirect cost – n0 , Product cost – no
c. Indirect cost – yes , Product cost – yes
d. Indirect cost – yes , Product cost – no

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 Lesson Proper / Course Methodology:

The Cost Accounting Cycle

Different types of organizations have different types of costs. Manufacturing
organizations need information about the costs of manufacturing products, which
include the costs of direct materials, direct labor, and overhead. Retail
organizations need information about the costs of purchasing products for resale,
which include adjustments for freight-in costs, purchase returns and allowances,
and purchase discounts. Service organizations need information about the costs
of providing services, which include the costs of labor and related overhead.
A single cost can be classified and used in several ways, depending on the
purpose of the analysis.
Direct costs are those that managers can conveniently and economically trace to
a specific cost object; indirect costs are those that cannot be conveniently and
economically traced. Managers use both direct and indirect costs to support
decisions about pricing or about reallocating resources to other cost objects.
A variable cost is one that changes in direct proportion to a change in productive
output; a fixed cost remains constant within a defined range of activity or time
period. By classifying costs according to these patterns of behavior, managers
can estimate how changes in selling prices or operating costs will affect
profitability.
A value-adding cost is the cost of an activity that increases the market value of a
product or service; a nonvalue-adding cost is the cost of an activity that adds cost
to a product or service but does not increase its market value. Classifying costs
as value-adding or nonvalue-adding enables managers to target opportunities for
continuous improvement that lead to increased customer satisfaction.
Product costs, or inventoriable costs, are costs assigned to inventory; period
costs, or non-inventoriable costs, are costs of resources used during the
accounting period but not assigned to products. Managers use these
classifications in preparing financial statements.

 The flow of costs through a manufacturer’s inventory accounts

Transforming materials into finished products ready for sale requires a number of
production and production-related activities, including purchasing, receiving,
inspecting, storing, and moving materials; converting them into finished products
using labor, equipment, and other resources; and moving, storing, and shipping
the finished products. A manufacturing organization’s accounting system tracks
these activities as product costs flowing through the various inventory accounts.

The manufacturing cost flow begins when costs are incurred for direct materials,
direct labor, and overhead. Materials costs flow first into the Materials Inventory
account, which is used to record the costs of materials when they are received
and again when they are issued for use in a production process. All
manufacturing-related costs—direct materials, direct labor, and overhead—are
recorded in the Work in Process Inventory account as the production process

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begins. These costs represent total manufacturing costs. When products are
completed, their costs are transferred from the Work in Process Inventory account
to the Finished Goods Inventory account. These costs represent the cost of
goods manufactured. Costs remain in the Finished Goods Inventory account until
the products are sold, at which time they are transferred to the Cost of Goods
Sold account.
A number of documents are used to record the flow of manufacturing costs. They
include a purchase request for materials necessary to fill a sales order; a
purchase order, which is sent to a vendor; a receiving report that describes the
incoming materials; the vendor’s invoice; a materials request form, which
authorizes the release of materials from a storeroom to production; time cards
that track employees’ work hours; a job order cost card, which records all costs
incurred as a product moves through production; a sales invoice; and a shipping
document that accompanies products sent to a customer.

Transaction Debit Credit

When raw materials are Raw Materials Accounts Payable /

purchased on account or cash Inventory Cash

When expenses are paid for Raw Materials Cash

freight Inventory

When goods are returned to Accounts Raw Materials Inventory

supplier Payable / Cash

System of Cost Accumulation

1. Actual Cost System – under this system, direct materials, direct labor and
factory overhead costs are determined as they occur simultaneously with the
manufacturing operation but the total of these is known only after the
operation has been completed. An actual costs system collects the actual
amounts of direct material, direct labor and factory overhead of each product.
2. Standard Cost System – under this system, costs are determined in advance
from analysis and forecasts made before the actual production begins. In
standard cost system, standard unit costs are computed for direct materials,
direct labor and factory overhead; these amounts rather than the actual costs,
are carried to finished goods inventory
3. Normal Cost System – this system is a combination of the actual cost system
and standard cost system. It accumulates only the actual amounts of direct
materials and direct labor costs. Factory overhead costs are accumulated on a
basis of a predetermined rate.
Comparisons

Product Costs Actual Costing Standard Costing Normal Costing

Direct Materials Actual Standard Actual

Direct Labor Actual Standard Actual

Factory Overhead Actual Standard Predetermined

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 Types of Cost System
1. Job Order Cost System – accumulates costs applicable to each specified job
order or lot of similar goods manufactured on a specific order for stock or for a
customer. When production on a job begins, the job is assigned a number,
and a form called JOB COST SHEET is set up. Job cost sheet shows the
total costs of the completed job. The cost per unit may then be obtained by
dividing the total cost of the job by the number of units completed.
2. Process Cost System – accumulates costs without attempting to allocate
them during the accounting period to specific unit of goods being
manufactured. At the end of the fiscal period, the average cost per unit is
determined by dividing the total cost accumulated by the number of units
produced. If process costing is used, the goods manufactured must be similar
in nature so that an average cost will be meaningful. This is commonly used in
operations like cement plant, flour mills

Illustration – Job Order Cost System (Actual Costing System)

The general ledger of Blue Bearings Company contained the following accounts,
among others on January 1 of the current year: Finished goods – P15,000, Work in
process – P30,000, Materials – P25,000. During January, the following transactions
were completed and journalized.

Transactions Account Title Debit Credit

a) Materials were purchased on Materials 27,000
account at a cost of P27,000 Accounts payable 27,000

b) Steel in the amount of P35,000 was Work in process 35,000

issued from the factory Materials 35,000

c) Requisitions for indirect materials Factory overhead control 3,600

and supplies amounted to P3,600 Materials 3,600

d) The total payroll for January Sales salaries 10,000

amounted to P54,000, including Administrative salaries 10,000
marketing sales salaries of Work in process 34,000
P10,000and administrative salaries Cash 54,000
of P10,000. Job time tickets show
that P34,000 of the labor cost was
direct labor.

e) Various indirect manufacturing costs Factory overhead control 5,016

totalling P5,016 were paid in cash Cash 5,016

f) Various indirect manufacturing costs Factory overhead control 17,000

totalling P17,000 were incurred on Accounts payable 17,000
account

g) Total factory overhead is charged to Work in process 25,616

work in process Factory overhead control 25,616
(3,600 + 5,016 +
17,000)
h) Cost of production completed in Finished goods 120,200
January totaled P120,200 and Work in process 120,200
finished goods on January 31
totaled P30,200

i) Customers to whom shipments were Accounts receivable 150,000

made during the month were billed Cash 150,000

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 for P150,000
Cost of goods sold 105,000
Finished goods 105,000

Solution
Beginning 15,000
Add Goods completed 120,200
Total 135,200
Less: Finished goods ending 30,200
Cost of goods sold 105,000

Illustration 2 – Job Order Cost System (Normal Costing System)

Maroon Manufacturing Company currently uses normal costing system in accumulating
the cost of production. Factory overhead is applied at 70% of direct labor costs. The
following data were provided for the current year: Prepare the entries to record the
following transactions.

Direct labor P 2,700,000

Raw materials
 Inventory, January 1 450,000
 Purchases on account 4,500,000
 Issuance to production 3,600,000
Factory overhead
 Depreciation 220,000
 Maintenance 125,000
 Utilities 145,000
 Indirect materials 230,000
 Indirect labor 600,000
 Miscellaneous overhead 105,000
Work in process
 Beginning inventory 720,000
 Ending inventory 650,000
Finished goods
 Beginning inventory 160,000
 Ending inventory 240,000

Transactions Account Title Debit Credit

a) Materials were purchased on Raw Materials 4,500,000
account at a cost of P4,500,000 Accounts payable 4,500,000

b) Materials issued to production – Work in process 3,370,000

P3,600,000 Materials 3,370,000
(3,600,000 – 230,000)
c) Requisitions for indirect materials Factory overhead control 230,000
amounted to P230,000 Materials 230,000

d) The total payroll for January Work in process 2,700,000

amounted to P3,300,000, including Factory overhead control 600,000
direct labor – P2,700,000 and Cash 3,300,000
indirect labor – P600,000

e. Factory overhead Factory overhead control 595,000

 Depreciation, 220,000 Accumulated depreciation 220,000
Cash 375,000
 Maintenance, 125,000
 Utilities, 145,000

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  Miscellaneous overhead,
105,000

f) Factory overhead is applied to the Work in process 1,890,000

production at 70% of direct labor costs Applied factory overhead 1,890,000
(2,700,000 x 70%)

e) Cost of production completed Finished goods 8,030,000

Work in process beginning 720,000 Work in process 8,030,000
Add Total debits in Work in process 7,960,000
Total 8,680,000
Less Work in process, end 650,000
Goods completed 8,030,000

f) Finished goods sold on account at a Cost of goods sold 7,950,000

mark-up on cost of 20% Finished goods 7,950,000
Finished goods beginning 160,000
Cost of goods completed 8,030,000 Accounts receivable 9,540,000
Total 8,190,000 Sales 9,540,000
Less Finished goods, ending 240,000
Cost of goods sold 7,950,000
Mark up on cost
(8,180,000 x 20%) 1,590,000
Sales 9,540,000

Illustration – Preparation of Statement of Cost of Goods Manufactured and Sold

(Actual Costing System)
As the management accountant for BM Enterprises, Inc., you have been asked to
prepare a statement of cost of goods manufactured and sold at the end of the first
quarter of 2011. Account balances at that time were as follows:

Materials inventory, January 1, 2011 P  510,500

Work in process   inventory, January 1, 2011 697,300
Finished goods   inventory, January 1, 2011 701,200
Direct materials   purchased during the quarter 1,105,400
Direct labor costs 154,800
Depreciation expense,   plant and equipment 16,200
Plant supervisors'   salaries 50,600
Insurance expense,   plant and equipment 1,100
Utilities expense,   plant 4,000
Indirect labor costs 16,800
Manufacturing supplies   expense 3,400
Small tools expense 1,500

March 31, 2011, inventories were as follows: materials, P540,200; work in

process, P795,400; and finished goods, P604,100. Prepare the statement of cost
of goods manufactured for the first quarter of 2011.
 

BM Enterprises, Inc.
Statement of Cost of goods Manufactured and Sold

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 For the first quarter ended March 31, 2011

Materials inventory, beginning 510,500

Add Purchases 1,105,400
Materials inventory available for use 1,615,900
Less: Material inventory, ending 540,200
Direct materials used 1,075,700
Direct Labor 154,800
Factory Overhead
Depreciation expense, plant and equipment 16,200
Plant supervisors'   salaries 50,600
Insurance expense, plant and equipment 1,100
Utilities expense, plant 4,000
Indirect labor costs 16,800
Manufacturing supplies   expense 3,400
Small tools expense 1,500
Total factory overhead 93,600
Total manufacturing cost 1,324,100
Add Work in process, beginning 697,300
Total cost of work put into process 2,021,400
Less: Work in process, ending 795,400
Cost of goods manufactured 1,226,000
Add Finished goods, beginning 701,200
Finished goods available for sale 1,927,200
Less Finished goods, ending 604,100
Cost of goods sold 1,323,100
==========
Illustration – Preparation of Statement of Cost of Goods Manufactured and Sold
(Normal Costing System)
Maroon Manufacturing Company currently uses normal costing system in accumulating
the cost of production. Factory overhead is applied at 70% of direct labor costs. The
following data were provided for the current year: Prepare the entries to record the
following transactions

Direct labor P 2,700,000

Raw materials
 Inventory, January 1 450,000
 Purchases on account 4,500,000
 Issuance to production 3,600,000
Factory overhead
 Depreciation 220,000
 Maintenance 125,000
 Utilities 145,000
 Indirect materials 230,000
 Indirect labor 600,000
 Miscellaneous overhead 105,000
Work in process
 Beginning inventory 720,000
 Ending inventory 650,000
Finished goods
> Beginning inventory 160,000
> Ending inventory 240,000
Maroon Manufacturing Company
Statement of Cost of Goods Manufactured and Sold

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 For the year ended December 31, 2020

Materials inventory, beginning 450,000

Add Purchases 4,500,000
Materials inventory available for use 4,950,000
Less: Material inventory, ending (work back) 1,350,000
Materials used 3,600,000
Less Indirect materials used 230,000
Direct materials used 3,370,000
Direct Labor 2,700,000
Factory Overhead (70% of Direct labor) 1,890,000
Total manufacturing cost 7,960,000
Add Work in process, beginning 720,000
Total cost of work put into process 8,680,000
Less: Work in process, ending 650,000
Cost of goods manufactured 8,030,000
Add Finished goods, beginning 160,000
Finished goods available for sale 8,190,000
Less Finished goods, ending 604,100
Cost of goods sold 7,585,900
Less overapplied factory overhead 465,000
Adjusted cost of goods sold 7,120,900
==========

Actual factory overhead incurred

Ø  Depreciation 220,000
Ø  Maintenance 125,000
Ø  Utilities 145,000
Ø  Indirect materials 230,000
Ø  Indirect labor 600,000
Ø  Miscellaneous overhead 105,000
1,425,00
Total actual factory overhead
0
1,890,00
Applied factory overhead 0
Overapplied factory overhead -465,000

If Actual overhead is greater than Applied overhead, there is underapplied factory

overhead

If Actual overhead is less than Applied overhead, there is overapplied factory

overhead

A. Application

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Exercise 1
Pink Company incurred the following costs during the month: direct labor – P160,000; factory
overhead – P128,000; and direct materials purchases – P180,000. Inventories show the
following costs:
Beginning Ending
Finished goods 17,000 22,000
Work in process 72,500 50,500
Direct materials 42,500 37,500

Compute for the following:

a. Prime cost? Conversion cost
b. Total manufacturing cost?
c. Cost of goods manufactured
d. Gross profit assuming a mark up of 50% based on cost.
e. gross profit assuming a mark up of 30% based on sales.

Exercise 2 Actual Costing System

During the month of August, the following transactions were completed and reported by
Red Army Manufacturing Company.

a) Raw materials purchased on account, P360,000

b) Materials requisitioned for the month was P220,000, P16,000 of which factory
supplies
c) Factory payroll for the month was P180,000 of which P45,000 was for indirect
laborers
d) Depreciation on factory plant and equipment for the month, P15,000
e) Factory taxes amounted to P2,500
f) Factory insurance expired amounted to 6,750
g) Factory utilities for the month amounted to P7,500

Additional information:
 Actual overhead is charged to production
 80% of the jobs put into process are completed
 All beginning inventories plus 60% of the goods completed for the month were
delivered to customers at 50% mark-up on cost. The company’s terms on all
sales is 45 days
 Inventories reported at the beginning of the month are: Raw Materials – P75,000,
Work in Process – P100,000, Finished Goods – P80,000

Required:
1. Prepare journal entries to record the above transactions and post the entries to
T-accounts
2. Prepare statement of cost of goods manufactured and sold

Exercise 3 Actual Costing System

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The general ledger of Blue Bearings Company contained the following accounts, among
others on January 1 of the current year: Finished goods – P15,000, Work in process –
P30,000, Materials – P25,000. During January, the following transactions were
completed:

a) Materials were purchased on account at a cost of P27,000

b) Steel in the amount of P35,000 was issued from the factory
c) Requisitions for indirect materials and supplies amounted to P3,600
d) The total payroll for January amounted to P54,000, including marketing sales
salaries of P10,000and administrative salaries of P10,000. Job time tickets show
that P34,000 of the labor cost was direct labor.
e) Various indirect manufacturing costs totaling P5,016 were paid in cash
f) Various indirect manufacturing costs totaling P17,000 were incurred on account
g) Total factory overhead is charged to work in process
h) Cost of production completed in January totaled P120,200 and finished goods on
January totaled P30,200
i) Customers to whom shipments were made during the month were billed for
P150,000

Required: Prepare journal entries for the above transactions.

Exercise 4 Actual Costing System

The following job order cost detail pertains to the three jobs that were in process at the
Green Company during February:

Job 36 Job 37 Job 38

Cost charged in prior period P80,000 P30,000 P–0-
Cost added in January
 Direct Materials 70,000 90,000 110,000
 Direct Labor 90,000 80,000 70,000
 Factory overhead 72,000 64,000 56,000

Required: Prepare the appropriate journal entry to record each of the following
February transactions
1. Direct materials were issued from the materials store room to work in process
2. The payroll was distributed to work in process
3. Factory overhead was charged to production for the period
4. Job order 36 and 37 were completed and transferred to the finished goods store
room

Exercise 5 Actual Costing System

The data given below are available from the records of Black Company:

Items Case 1 Case 2

Direct materials used P 41,500 (g)
Direct labor 15,000 P 20,000
Manufacturing overhead 30,000 25,000
Total manufacturing costs (a) 100,000
Work in process, beginning 5,000 (h)
Work in process, ending (b) 10,000
Cost of goods manufactured 79,000 105,000
Finished goods, beginning (c) 20,000
Goods available for sale 86,500 (j)
Finished goods ending 6,000 12,500
Sales 112,500 (i)
Sales discounts 7,500 6,000

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 Cost of goods sold (d) (k)
Gross profit (e) 30,000
Operating expenses 13,500 (l)
Net income (f) 16,000

Required: Determine the answer to the unknown with your supporting computation
on a separate pad.

Exercise 6 Actual Costing System

White Dress Shop makes dresses. The following information has been gathered from
the company records of 2018, the first year of operations. Work in process inventory at
the end of the year was P100,000.

Raw materials purchased on account of which only 75% were paid during the P 2,350,000
year
Raw materials issued to production, of which 25% is indirect materials 1,940,000
Accrued factory payroll (80% is direct labor) 1,350,000
Depreciation of sewing and computer equipment 80,000
Factory utilities paid 320,000
Factory insurance paid and expired 17,500
Factory rent including P50,000 deposit 960,000

Required: Determine the following

1) Total factory costs for the period

2) Cost of goods manufactured for the year
3) Gross profit assuming 75% of the production is sold at a profit rate of 35% based
on sales

Exercise 7 Actual Costing System

The following information has been taken from the cost records of Violet Co. for the past
year

Raw materials used in production P 326,000

Prime cost for the period 551,000
Conversion cost for the period 360,000
Cost of goods available for sale 826,000
Selling and administrative expenses 25,000
Inventories Beginning Ending
Raw materials P 75,000 P 85,000
Work in process 80,000 30,000
Finished goods 90,000 110,000

Required: Determine the following

1) Cost of raw materials purchased for the period
2) Total factory costs for the period
3) Cost of goods manufactured for the period
4) Cost of goods sold for the period

Exercise 8 Normal Costing System

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The accountant of Yellow Corporation submits the following data for the month of June,
2018

Raw Materials put into process 240,000.00

Direct Labor Cost
Department A 140,000.00
Department B 160,000.00
Factory Overhead
Department A 120% of Direct Labor
Department B Cost
80% of Direct Labor Cost
Inventories June 1 June 30
Finished Goods 108,000.00 120,000.00
Work in Process 160,000.00 128,000.00
Raw Materials 120,000.00 150,000.00

Determine the following:

1. Raw materials purchased
2. Prime Costs
3. Conversion Costs
4. Total Manufacturing Costs
5. Cost of Goods Manufactured
6. Cost of Goods Sold
Exercise 9 Normal Costing System
Last month, Gold Company placed P60,000 of materials into production. The Printing
Department used 8,000 labor hours at P5.60 per hour and the Binding Department used 4,600
hours at P6.00 per hour. Factory overhead is applied at a rate of P6.00 per labor hour in the
Printing Department and P8.00 per hour in the Binding Department. Gold’s inventory accounts
show the following balances:
Beginning Ending
Finished Goods 22,000 17,000
Work in process 15,000 17,600
Materials 20,000 18,000
a. How much is the total manufacturing cost?
b. How much is the cost of goods sold?

Exercise 10 Normal Costing System

The following data was taken from the records of the Silver Company:

08/31/2011 09/30/2011
Inventories:
Raw Materials ? 50,000
Work in process 80,000 95,000
Finished Goods
Pprocess 60,000 78,000

Additional information:
Raw materials purchases, P46,000, Factory overhead, 75 % of direct labor cost, P63,000,

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 Selling and administrative expenses, 12.5% of sales, P25,000, Net income for September,
2011, P25,000. Compute for the following:
a. Direct labor
b. Sales
c. Gross profit
d. Cost of goods sold
e. Cost of goods manufactured
f. Raw materials used
g. Raw materials, August 31, 2018
Exercise 11 Normal Costing System
Gray Corporation manufactures rattan furniture set for export and uses the job order
cost system in accounting for its cost. You obtained from the corporation’s books and
records the following information for the year ended December 31, 2018:
- The work in process inventory on January 1 was 20 % less than the work in process
inventory on December 31
- The total manufacturing cost added during 2018 was P900,000 based on actual
direct materials and direct labor but with manufacturing overhead applied on actual
direct labor pesos.
- The manufacturing overhead applied to process was 72% of the direct
labor pesos, and it was equal to 25% of the total manufacturing cost.
- The cost of goods manufactured, also based on actual direct material, actual direct
labor and applied manufacturing overhead , was P850,000.
Compute for the following:
a. Factory overhead applied
b. Direct labor
c. Direct materials used
d. Work in process December 31, 2018
e. Work in process, January 1, 2018

Exercise 12 Normal Costing System

On January 1, the general ledger of Brown Company contained the following accounts
and balances:

Cash P 94,000
Accounts receivable 100,000
Finished goods 65,000
Work in process 15,000
Materials 44,000
Machinery 90,600
Accumulated depreciation – Machinery 20,000
Accounts payable 118,750
Common stock 200,000
Retained earnings 69,850

Details of work in process inventory are:

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 Work in process inventory Job 101 Job 102
Direct materials
 1,000 units of A @ P5 P 5,000
 400 units of B @ P3 P 1,200
Direct labor
 1,000 hours @ P4 4,000
 400 hours @ P5 2,000
Factory overhead (applied at the rate of P2 per
direct 2,000 800
labor hour
Total P11,000 P 4,000

During January, the following transactions were completed:

a) Materials were purchased on account for P229,040
b) Payroll totaling P220,000 was accrued
c) Payroll was distributed as follows: Job 101 – 5,000 hours @ P8, Job 102 – 8,000
hours @ P10, Job 103 – 6,000 hours @ P6, Indirect labor - P24,000 and selling and
administrative – P40,000
d) Materials were issued as follows: Job 101 – P103,200, Job 102 – P84,000, Job 103
– P29,150, Indirect materials – P15,040
e) Factory overhead was applied to Job 101, 102 and 103 at a rate of P4.50 per direct
labor hour
f) Jobs 101 and 102 were completed and immediately sold on account for P250,000
and P270,000 respectively
g) After allowing a 5% discount, a net amount of P494,000 was collected on accounts
receivable
h) Selling and administrative expenses (other than salaries) paid during the month
amounted to P30,000. Other factory overhead paid, P49,720
i) Payments on account (other than payroll) amounted to P170,000
j) Applied factory overhead is closed to Factory overhead control. The over or under-
applied factory overhead is then closed to Cost of goods sold

Required: Journalize the January transactions, Prepare a cost of goods sold statement,
Statement of Income and Statement of financial position.

Exercise 13 Normal Costing System

Purple Inc. has the following inventories on March 1:

Finished goods (Job 120) P 15,000

Work in process 19,070
Materials 14,000

The Work in process account controls three jobs:

Job 121 Job 122 Job 123
Materials P 2,800 P 3,400 P 1,600
Labor 2,100 2,700 1,350
Applied factory overhead 1,680 2,160 1,080
Total P 6,580 P 8,260 P 4,230 19,070

The following information pertains to March operations:

a) Materials purchased and received cost P22,000 at terms n/30

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 b) Materials requisitioned for production cost P21,000. Of this amount, P2,400 was
for indirect materials, the difference was distributed as follows: Job 121 –
P5,300, Job 122 – P7,400 and Job 123 – P5,900
c) Materials returned to the storeroom from the factory totalled P600, of which P200
was for indirect materials, and the balance is from Job 122
d) Materials returned to vendor totalled P800
e) Payroll of P38,000 was accrued in March
f) Of the payroll, direct labor represented 55%; indirect labor – 20%, sales salaries
– 15% and administrative salaries – 10%. The direct labor cost was distributed:
Job 121 – P6,420, Job 122 – P8,160, Job 123 – P6,320
g) Factory overhead other than previously mentioned amounted to P9,404.50.
included in this figure were depreciation of factory building and equipment –
P2,000, Expired insurance on factory – P250, The remaining overhead of
P7,154.50 was unpaid at the end of March
h) Factory overhead was applied to production at a rate of 80% of the direct labor
cost to be charged to the 3 jobs, based on the labor costs for March
i) Jobs 121 and 122 were completed and transferred to the finished goods
warehouse
j) Both jobs 120 and 121 were sold and billed at a profit rate of 40% of the cost of
goods sold
k) Cash collections from accounts receivable during March – P40,000

Required:
1) Journalize the March transactions
2) Prepare a schedule of inventories on March 31
3) Prepare the statement of cost of goods sold for March

Exercise 14 Normal Costing System

On September 1, the accountant of Fuchsia Company prepared a trial balance from
which the following accounts were extracted:

Finished goods (2,800 units) P 9,800

Work in process (1,200 units) 4,070
Materials and supplies 40,700
Buildings 48,700
Accumulated depreciation – Buildings P 6,000
Machinery and equipment 96,000
Accumulated depreciation – Machinery and Equipment 37,500
Office equipment 3,200
Accumulated depreciation – Office equipment 1,000

The following transactions and other data have been made available for September:

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 Purchased materials and supplies P 24,800
Paid factory overhead 20,100
Paid marketing expenses 25,050
Paid administrative expenses 19,700
Requisitions for direct materials 29,800
Indirect materials 3950
Depreciation:
 Building, 5% (75% to manufacturing, 15% marketing,
and 10% administrative)
 Machinery and equipment, 10%
 Office equipment, 15% (40% marketing, 60%
administrative)
Sales (20,700 units) 144,900
Sales returns and allowances 1,300
Cash payments:
 Accounts payable 75,000
 Payroll 21,800
Distribution of payroll
 Direct labor 18,600
 Indirect labor 4,400
Cash collected from customers 116,900
Applied factory overhead based on machine hors used 27,450
Transferred to finished goods, 20,400 units, cost of goods
sold is calculated on the FIFO basis 9,250
Work in process inventory on September 30 4,440
Required:
1) Prepare in detail the cost of goods sold statement and income statement for
September 30, assuming that over or under-applied factory overhead is deferred
until the end of the calendar year.
2) Calculate the amount of over or under-applied factory overhead

Exercise 15 Normal Costing System

The Sky Blue Company’s January 1 account balances are:

Debit Credit
Cash P 40,000
Accounts receivable 50,000
Finished goods 19,000
Work in process 9,000
Materials 20,000
Machinery 80,000
Accumulated depreciation P 20,000
Accounts payable 31,000
Accrued payroll 4,500
Common stock 120,000
Retained earnings 42,500
Total P 218,000 P 218,000

The following transactions and other data have been made available for January:
a) Materials purchased on account – P184,000
b) Miscellaneous factory overhead incurred on account was P53,060
c) Labor, accumulated and distributed using a payroll account was incurred as
follows: for direct production – P 121,000, indirect labor – P25,000, sales

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 salaries – P16,000, administrative salaries – P10,000. The total accrued payroll,
including the January 1 balance was then paid.
d) Materials were consumed as follows: direct materials – P165,000, indirect
materials – P16,600
e) Factory overhead charged to production was P94,660
f) Work finished and placed in stock – P376,000
g) All but P24,000 of finished goods were sold, terms 2/10, n/60. The mark up was
30% above the production cost. The sales and receivable are recorded in the
gross amount.
h) Of the total accounts receivable, 80% was collected less 2% discount (round off
to the nearest peso)
i) A liability was recorded for various marketing and administrative expenses
totaling P60,000. Of this amount, 60% was marketing and 40% was
administrative
j) The check register showed payments of P208,000 for liabilities other than payroll

Required:
1) Prepare journal entries to record the above transactions
2) Prepare the statement of cost of goods sold
3) Prepare the income statement
4) Prepare the statement of financial position

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