PROCESS COSTING: NATO`S

LONGGANISA
BRIEF DESCRIPTION OF THE
BUSINESS:
Nato`s Longganisa is a small manufacturer of Lucban
longganisa. The business is located at Brgy 10. Quezon
Avenue Lucban, Quezon. The owner of the store is Donato
Sigue. The store is established on 1990, it is managed by the
owner himself together with his wife. They have 4 workers
who have their different work assignments. The salary for
their labor is of course, dependent on the number of hours
they perform the job. Since Lucban is famous for this product,
there are a lot of competitors existing in the market.

ABOUT THE PRODUCT...

Longganisa is a major product of Lucban,Quezon, it is
a garlickly slightly-sour sausage. The taste of this sausage is
not similar to the ordinary longganisa that is produced from
other provinces. It does not involve any curing but it should
be frozen for days. The sausage is made up of ground pork
mixed with herbs and a lot of garlic. The production of lucban
longganisa requires grinding the meat and mixing it with other
ingredients. After that, the longganisa should be packed in a
sausage casing. Nato`s longganisa are sold for 70 pesos per
dozen. They also have the larger size which can be bought
for 140 pesos. Lucban longganisa is best dipped in a vinegar
to add the taste.
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APPLYING PROCESS COSTING
The following data summarizes the activities for the Grinding and Mixing Department for
the month of November:

 The department have a beginning inventory of 72 dozen. The material cost for this
inventory was100% complete, but it is only 50% complete in regards with the
conversion cost. The direct material for the inventory beginning have a cost of P3,402
for direct material cost and P864 for conversion cost.

 480 dozen of longganisa were placed in the production but only 425 were completed
and. The department consumes a material cost of P20,680 while it incurred P4,760 for
conversion cost.

 The ending inventory for the process was 55 dozen. It is 100% complete in terms of
material cost but only 40% complete in terms of conversion cost.

 There is an inventory beginning of P3,210 for the finished goods.

 The finished goods inventory beginning has 0 balance.

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 NATO`S LONGGANISA
MIXING AND PACKAGING DEPARTMENT
PROCESS COST REPORT: FIFO METHOD

Account for physical units

Beginning Inventory 72
Unit started into 480
production during the
period
Units to be accounted 552
for:
2. Account for equivalent units
Current Equivalent Unit of Effort
Direct % Incurred Conversion % Incurred
Materials Cost
Beginning Inventory 72 - 0 36 50%
Unit completed and 425 425 100% 425 1
transferred out
Ending Inventory 55 55 100% 22 40%
Units Accounted for 552 480 483
Account for cost
Beginning Inventory P4266 P3402 P864
Current Cost P26440 P20680 P4760
Total Cost P30706
Cost per equivalent unit
Current P20680/ P4260/483
Cost/ Equivalent Units 480
Cost per equivalent unit P51.9 P43.08 P8.82
Cost of Goods Manufactured and Ending Inventory
Cost of goods
manufactured and
transferred out:
From Beginning 4,266
Inventory
Current Cost to 317.52 0 (36*8.82)
complete:
Units Started and 22057.5 (425*43.08) (425*8.82)
Completed this period
Cost of Goods 26641.02
Manufactured
Ending Inventory 2854.5 (55*43.08) (55*8.82)
Total Cost 23786.52
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 The longganisa produced for the month are all in small sizes, it`s selling price as
mentioned earlier, is 70 pesos per dozen. As of the moment, all of the longganisa produced for
the month of October have been sold. The report for cost of goods sold appear below:

Cost of goods sold

Cost of goods manufactured: P26,641.02

Goods available for sale P26,641.02

Deduct: Finished goods inventory, ending

Cost of Goods Sold P26,641.02

It is necessary to compute the net operating income for the said month. To get this, the income
statement for the month of November is shown below:

Nato`s Longganisa

Income Statement

For the month ended November 30,2017

Sales ………………………………………………………………………… P36,000

Cost of Goods Sold ……………………………………………………….. P26,641.02

Gross Margin………………………………………………………………. P9,358.98

Selling and Administrative Expenses:

Sales and Travel Expense …………………………………P200

Sale Commissions Expense ……………………………….P1,400

Depreciation Expense ………………………………………P700 P3,300

Net Operating Income …………………………………………………………P6,058.98

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