Monday, 4 September 2017

Cost Accounting

Cost Accounting Cycle

Materials Inventory - balances of materials and supplies on hand

Work in Process Inventory - all manufacturing costs incurred and assigned to products
being produced

Predetermined Overhead Rate - rate assigned to products

Finished Goods Inventory - same characteristics of the Merchandise Inventory

account; made up of the costs of products completed but unsold as of that date

Elements of Manufacturing Costs

1. Direct Materials - cost of material which become part of the product being
manufactured and which can be readily identified with a certain product
Indirect Materials - materials that cannot be readily identified with any particular
item manufactured

2. Direct Labor - cost of labor for those employees who work directly on the product
manufactured
Indirect Labor - required for the manufacturing process but who do not work
directly on the units being manufactured

3. Factory Overhead - all costs related to the manufacturing of a product except direct
materials and direct labor

Cost Accounting Cycle

Step 1: Compute the cost of materials used

Step 2: Computation of the total manufacturing costs

Step 3: Charges total manufacturing costs into total cost of goods manufactured for
the year

Step 4: Computation of the cost of goods sold

Illustration:

1. Materials are purchased on account at a cost of P50,000

Materials 50,000

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Accounts Payable 50,000

2. Direct materials 40,000 and indirect materials 1,900 are issued to the factory

Work in Process 40,000

Factory Overhead Control 1,900
Materials 41,900

3. Payroll: 20,000 Direct Labor; 7,000 Indirect Labor; 9,000 Sales and Administrative

Payroll 36,000
Accrued Payroll 36,000

Accrued Payroll 36,000

Cash 36,000

4. Distribution/Classification of Payroll

Work in Process 20,000

Factory Overhead Control 7,000
Selling and Administrative Expense Control 9,000
Payroll 36,000

5. Depreciation Expense one-tenth for building and nine-tenths for factory operation

Factory Overhead Control 3,375

Selling and Administrative Expense Control 375
Accumulated Depreciation - Building 3,750

6. Depreciation Expense for machinery and equipment of 20%

Factory Overhead Control 2,500

Accumulated Depreciation - Mach. & Equipt. 2,500

7. Heat, light, and power 3,000

Factory Overhead Control 2,700

Selling and Administrative Expense 300
Accounts Payable 3,000

8. Miscellaneous Expense 1,500

Selling and Administrative Expense Control 1,500

Accounts Payable 1,500

9. Factory Overhead 85% of Direct Labor Cost

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Work in Process 17,000
Factory Overhead Applied 17,000

10. All goods started have been finished

Finished Goods 77,000

Work in Process 77,000

11. Closing the factory overhead control and factory overhead applied

Factory Overhead Applied 17,000

Underapplied Factory Overhead 475
Factory Overhead Control 17,475