Cost Accounting Summary Notes

Jwyneth Royce Denolan- BSA 2A

MANUFACTURING OPERATIONS Flow of Cost

Product Cost
1. Expired (Expense) – COGS Raw Materials Inventory Factory Supplies Inventory
2. Unexpired (Asset) – RMI/FSI, WIP, FGI DM unused DM used (1) IDM unused IDM used (1)

Elements of Cost/ Components of Product Costs IDM unused IDM used (1)
1. Direct Material
- Readily identifiable parts of the product
- if insignificant → indirect material

2. Direct Labor
Manufacturing
- Effort of individuals who manufacture a Overhead Control Work in Process Inventory
product or perform a service IDM used (2) Applied/ DM used (2) Completed
- Directly adds value to the final product Assigned WIP (1)
- Equal to total wages and salaries paid, Indirect Labor OH (1) Direct Labor
including bonuses, benefits, etc.
Incurred/ Applied/
- Reasons why some DL are treated as Assigned
Actual MOC
indirect: OH (2)
a. Tracing certain labor costs to
production is inefficient Finished Goods Inventory Cost of Goods Sold
b. Doing so could result in erroneous
Completed FG sold (1) FG sold (2)
information about product costs WIP (2)
- OT Premiums and idle time = indirect
- Special requirements by customers that
require OT = direct

3. Manufacturing Overhead
- Any factory or production cost that is Notes:
indirect to manufacturing a product
- Includes indirect material, indirect labor, • Raw Materials Inventory includes both direct
other production costs and indirect materials unless differentiated
- Can be variable or fixed (use FSI account)
- Incurred in production, selling, and • FSI account is used for firms that have
administrative departments significant amount of indirect materials
- Allocated for the ff. reasons: • Manufacturing Overhead is closed at year-
a. To determine full cost of the end. It does not appear in the FS
object
b. To motivate manager in charge of
Degrees of Conversion in Firms
cost object to manage in
Low Moderate High
efficiently
Adding only the Washing, testing, Major input to
c. To compare alternative courses of convenience of packaging, output
action for management planning, having labelling, etc. transformation
controlling, and decision-making merchandise when
assortment is
needed by
customers

Retailing Retailing Manufacturing,

companies that act companies make constructions,
as mere conduits small visible agricultural,
additions prior to auditing firms,
sale mining, printing,
restaurants;
service companies
using significant
amount of labor
Two Accounting Systems
Non-Cost (Periodic) Cost (Perpetual)
Non-Cost (Periodic) Cost (Perpetual) Incurrence of overhead
- Inventories based on - Timely record of
physical counts changes in inventory MOC XX Same entry
- No detailed flow of accounts Suitable credit XX
cost provided - Timely info of
manufacturing costs Sale of finished goods
per unit of product
A/R XX A/R XX
Non-Cost (Periodic) Cost (Perpetual) Sales XX Sales @SP XX
Purchased of materials on
COGS XX
account
FGI @cost XX
Purchases – Raw Mat. XX Raw Materials Inv. XX Sales Returns
Indirect Mat. XX Factory Supplies Inv. XX
Vouchers Payable XX Vouchers Payable XX Sales Returns XX Sales Returns XX
A/R XX A/R XX
Returns
FGI XX
COGS XX
Vouchers Payable XX Vouchers Payable XX
Purchase Returns XX RMI/ FSI XX
Closing Entries
Payment within discount period
Entry #1 No closing entries
- Establish ending
Vouchers Payable XX Vouchers Payable XX
inventory accounts
Purchases Discount XX RMI (still unsold) XX
- Close temporary
Cash in bank XX COGS (sold) XX
credit balances
Cash in bank XX
RMI, end XX
Freight & handling WIP, end XX
Purchase Returns XX
Freight In XX RMI XX Purchase Discounts XX
Vouchers Payable XX Vouchers Payable XX Manufacturing Summary XX

*V/P may be A/P or Cash Entry #2

- Close beginning
Payroll inventory and
temporary debit
Direct Labor XX WIP XX balances
Indirect Labor XX MOC XX
Benefits Payable XX Benefits Payable XX Manufacturing Summary XX
WHT Payable XX WHT Payable XX RMI, beg XX
Vouchers Payable XX Vouchers Payable XX WIP, beg XX
Purchases – Raw Mat. XX
Employer’s Payroll Contribution Freight in XX
Direct Labor XX
EPC – Factory XX Indirect Labor XX
Benefits Payable XX MOC XX Overhead Debits XX
WHT Payable XX Benefits Payable XX
WHT Payable XX Entry #3
- Close beginning FG
Distribution of Payroll inventory & MF to IS

Vouchers Payable XX Same entry Income Summary XX

Cash in bank XX Manufacturing Summary XX
FGI, beg. XX
Accrual of Factory Payroll
(unpaid wages) Entry #4
- Establish ending FGI
Direct Labor XX WIP XX
Indirect Labor XX MOC XX FGI, end XX
Accrued Payroll XX Accrued Payroll XX Income Summary XX
Pro-forma Statements 2. Reactions to Changes in Activity
▪ VARIABLE – fluctuates in total
Company XX ▪ FIXED – remains constant in total
Cost of Goods Manufactured ▪ MIXED – partially fixed/variable
For the year ended Dec 20XX ▪ STEP – increases at certain activity levels
at an interval/ step
Direct Materials
Raw Materials Inv., beg XX 3. Classification on the FS
Net Cost of Purchases XX ▪ UNEXPIRED – balance sheet
Raw Materials available for use XX ▪ EXPIRED – income statement
Raw Materials, end (XX) ▪ PRODUCT – inventoriable costs
Raw Materials Used XX i. Prime – DL + DM
Direct Labor XX ii. Conversion – DL + OH
Manufacturing Overhead XX ▪ PERIOD – expensed; associated with a
Total Manufacturing Costs XX time period; selling, administrative,
Work in Process, beg XX finance costs
Total CTAF/COGPIP XX
Work in Process, end (XX) Other Terms
Cost of Goods Manufactured XX
Predictor – activity that accompanies observable
change; not necessarily the cause
Company XX
Income Statement (COGS Portion) Cost driver – predictor that has an absolute cause and
For the year ended Dec 20XX effect relationship

Finished Goods Inv., beg XX Relevant range – assumed range of activity that
Cost of Goods Manufactured XX reflects company normal operating range
Goods Available for Sale XX
Finished Goods Inv., end (XX) Activity-based costing – the use of multiple cost
Cost of Goods Sold XX drivers to predict different costs

Stages of Production
1. Raw material – work not started
2. Work in process – work not finished
COST TERMINOLOGY AND COST BEHAVIORS 3. Finished goods – work completed
Cost - monetary measure of resources consumed to
attain an objective Quality Costs – costs of controlling quality or failing to
control quality; overhead item
Cost Management System - set of formal methods 1. Prevention costs – costs of precluding
developed for planning and controlling an defects; minimizes appraisal and failure costs
organization’s cost-generating activities 2. Appraisal costs – costs incurred to find
mistakes not found during prevention;
monitoring/inspection costs
Cost Classifications 3. Failure costs – cost of inability to control
1. Association with cost object quality
▪ DIRECT COSTS – conveniently and
economically traceable; exclusive to the Cost allocation – assignment of indirect costs to the
object cost object
▪ INDIRECT COSTS – nontraceable;
allocated; such costs are used for Cost Formula
different objects 𝑌 = 𝑎 + 𝑏𝑥
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 + (𝑉𝑎𝑟𝐶𝑜𝑠𝑡𝑢 𝑥 𝑈𝑛𝑖𝑡)
*Cost object – anything for which costs are
accumulated; defined by management
OVERHEAD COST Disposition of over/underapplied OH
Overapplication Underapplication
Normal costing Immaterial
- Assigns actual DM and DL
- Allocates OH using a predetermined OH rate MOC XX COGS XX
(as opposed to actual costing where OH is COGS XX MOC XX
also assigned)
- Fulfills the matching principle Material
*Prorate to WIP, FGI, COGS balances
Reasons for using pOHr
1. Assignment of OH in actual period it is Factors causing difference between actual & applied:
incurred provides timely information 1. Cost differences
2. Adjustment for variations in actual OH costs 2. Capacity utilization differences
that are unrelated to fluctuations in activity
3. Overcoming problems re: fluctuations in Activity Level Selection
activity levels that do not impact fixed OH
4. Awareness of product profitability and 1. Theoretical Capacity
profitability with a customer - Ultimate max. activity for a specified
period
𝑝𝑂𝐻𝑟 - Full speed without interruptions
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂𝐻 𝑎𝑡 𝑆𝑝𝑒𝑐𝑖𝑓𝑖𝑒𝑑 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 - 100% of rated capacity
= - Unrealistic
𝑉𝑜𝑙𝑢𝑚𝑒 𝑜𝑓 𝑆𝑝𝑒𝑐𝑖𝑓𝑖𝑒𝑑 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙

*based on specified activity level measure that is 2. Practical Capacity

related to actual OH incurrence - Theoretical capacity reduced by allowance
for unavoidable interruptions
- 75-80% of theoretical capacity
Applying OH to Production - Adjusts for routine downtime
- Applied overhead: amount assigned to WIP
- When to apply: 3. Expected Actual Capacity
▪ As FGI are transferred out of WIP - Output expected during the period
▪ date of preparation of FS - Planned production
▪ anytime as production occurs (real- - Different pOHr per period
time)
4. Normal Capacity
Budgeted Amount XX - Average activity over time period long
Budgeted activity level XX enough to level out highs and lows
pOHr XX - Stabilizes pOHr
Multiply: Actual activity level XX - Considers present and future production
Applied OH XX levels and cyclical fluctuations
Actual OH (XX)
Overapplied OH XX Separating Mixed Costs
High-Low Method

Manufacturing Overhead Control 1. Choose high and low points (Disregard outliers)
2. Formula:
Total actual OH Total OH applied
incurred 𝑐𝑜𝑠𝑡 @ ℎ𝑖𝑔ℎ 𝑎𝑐𝑡. 𝑙𝑒𝑣𝑒𝑙 − 𝑐𝑜𝑠𝑡 @ 𝑙𝑜𝑤 𝑎𝑐𝑡. 𝑙𝑒𝑣𝑒𝑙
𝑏=
ℎ𝑖𝑔ℎ 𝑎𝑐𝑡. 𝑙𝑒𝑣𝑒𝑙 − 𝑙𝑜𝑤 𝑎𝑐𝑡. 𝑙𝑒𝑣𝑒𝑙

3. Solve for fixed cost: a = b X cost @ high or low

- If separate rates are used for variable and
4. Substitute a to cost formula
fixed OH, use separate OH accounts
- Underapplied/overapplied OH must be
disposed at year-end
Flexible Budgets Departmentalization
- A planning document that presents expected - dividing the plant into departments to which
variable and fixed costs at different activity OH costs are charged
levels - provides improved product costing
- Use departmental OH instead of plant-wide OH - promotes responsible control of OH costs
if departments use significantly different types
of work effort Direct Method
- service dept. costs are only distributed to
Absorption vs. Variable costing producing depts.; reallocate if percentage is
allocated to service department
Absorption Variable - minimizes clerical work, but fails to measure
(Full costing) (Direct costing) total cost per dept.
Includes both fixed and Variable costs only as - no particular order for distribution
variable costs as product product costs
costs Step/ Sequential Method
- allocates to both producing and service depts.
DM + DL + FOH + VOH DM + DL + VOH - recognizes that service depts. provide to other
service depts.*
Presents Presents both
nonmanufacturing costs nonmanufacturing and
- no other service dept. cost is distributed back to
on the IS according to manufacturing costs on IS it in a subsequent step (SDs shall be zeroed out)
functional areas according to cost behavior - predetermined sequence usually based on:
1. department that serves greatest # of
Product Costs Product Costs departments
1. DM + DL + FOH + VOH 1. DM + DL + VOH 2. department that provides largest dollar
Period Costs Period costs value
1. Nonmanufacturing 1. F. manufacturing OH
costs 2. F. nonmanufacturing OH Simultaneous/Algebraic Method
3. V. nonmanufacturing OH
- considers ALL interrelationships among
service departments
- formulate an equation for each service
𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 department and compute their respective
= 𝑆𝑎𝑙𝑒𝑠 – 𝑉. 𝐶𝑂𝐺𝑆
actual costs* through substitution
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛
= 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 – 𝑉. 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠

DEPARTMENTALIZATION
Total Producing Dept. Producing Dept 2. Service Dept. 1 Service Dept. 2
1
Total XX XX XX S1 S2
Service Dept. 1 (%S1) (%S1) (S1) (%S1)
(S1*)
Service Dept. 2 (%S2) (%S2) (%S2) (S2*)
(S2)
Total Cost per Dept. XX XX XX XX XX
Divide by:
Total budgeted activity level XX XX XX XX
Cost per activity level unit XX XX XX XX
MATERIALS Forms
1. Purchase requisition – written request for
Purchasing Materials materials
2. Purchase order – written authorization to
Re/order Point = (Daily usage X normal LT) + SS supplier to ship specified materials
- point at which an item should be ordered 3. Receiving report – show all details of the
shipment + comments on condition of
Lead time materials; receiving clerk received blind copy
- time it takes for material to be delivered of PO for independent check
after an order is placed
Special purchasing procedures
Usage ▪ Bill of materials – lists all materials required
- rate at which a material will be used on the job and the date they will be needed
▪ Debit memorandum – notice to the vendor of
Safety stock = (Daily usage)(Max-Normal) a deduction from the invoice for the cost of
- minimum level of materials that should materials returned
be on-hand ▪ Credit memorandum – for surplus materials
kept; sent to vendor for additional cost
Normal max. inv. = RP – (Normal x LT) + Q ▪ Computerized materials purchases system –
online; allows company to have up-to-date
Absolute max. inv. = RP – (Minimum x LT) + Q info available & to improve purchase process

𝟐𝑪𝑵
Changing Tech in Materials Purchasing
Economic order quantity (EOQ) = √
𝑲
▪ Electronic Data Interchange (EDI) – system;
- Where: intercompany computer-to-computer
▪ C = cost of placing an order transmission of business forms; connected to
▪ N = # of units required annually Electronic Funds Transfer for invoice payment
▪ K = carrying cost per unit of ▪ Direct debits – banks are instructed to make
inventory automatic withdrawals
- Most advantageous # of units to order ▪ Corporate purchasing cards – allows the use
of corporate credit cards for inexpensive
items: repairs, maintenance, operational
Ordering costs Carrying costs expenses
▪ Salaries and wages ▪ Storage and
in purchasing, handling
▪ Integrated supply management – supplier
receiving, inspecting ▪ Interest, insurance, owns company’s inventory of supplies;
depts. property taxes supplier is responsible for all/part of inventory
▪ Communication ▪ Loss due to theft, for maintenance repair
costs w/ ordering deterioration,
▪ Materials obsolescence
accounting and ▪ Records and
record-keeping supplies associated
w/ carrying of
inventories

Tabular method of EOQ

(a) Order size (b) # of orders (c) Total order (d) Average (e) Total Carrying Cost (f) Total Cost
cost Inventory
EOQ 𝑵 𝑪𝒙𝒃 𝒂 𝑲𝒙𝒅 𝒄+𝒆
𝒂 𝟐

Safety Stock

(a) Safety stock (b) Stockouts per (c) Stockout cost (d) Carrying cost (e) Total stockout +
(units) year carrying cost
SS # of orders x stockout b x stockout cost per SS x carrying cost per c+d
probability occurrence unit
ACCOUNTING FOR LABOR COST Forms used
1. Clock/Time Card – time in and time out; time
Basic pay – base rate of job rate spent within the company
Labor cost = basic pay + fringe benefits costs 2. Time/Job Ticket - # of hours worker devoted to a
job; primary basis of direct labor cost
*Labor cost represents human contribution to 3. Daily Time Report - # of hours timed in for the
production day
Labor cost control – keeping track of labor costs in 4. Payroll Sheet – shows net pay; provides columns
total and per unit, comparing w/ predetermined for OT and deductions as well
figures, adopting measures in case of variances 5. Employees’ Earnings Records – periodic and
accumulated earnings of each employee; used in
Departments Involved: computation of fringe benefits
1. Production planning
Salary - fixed amount of compensation for services
2. Personnel
rendered covering a fixed period of time usually a
3. Time and motion study
month; managerial, administrative and rank and file
4. Budgeting
employees.
5. Time-keeping and accounting
Procedures: Wage - fixed amount of compensation for services
rendered covering fixed period of time, usually hours,
1. Production planning – intensive study of product or fixed amount of work, usually by piece.
design which will be the basis in determining the
kinds of HR required Fixed monthly earners – are employees with fixed
2. Use of labor budgets and standards – time and monthly basic pay as basis in computing salary.
motion studies are conducted to prepare labor
budget and measure performance Daily wages earners – are employees with daily rate
as basis for computing wages; “no work no pay”

𝑂𝑢𝑡𝑝𝑢𝑡 Type of employees

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐺𝑜𝑎𝑙 = 𝑥 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑉𝑜𝑙𝑢𝑚𝑒 ▪ Regular (R) - monthly salary
1 ℎ𝑟
▪ Probationary (P) – monthly salary/ daily wage
▪ Contractual (C) – daily wage / fixed contract fee
𝑁𝑜. 𝑜𝑓 𝐷𝑖𝑟𝑒𝑐𝑡 𝑊𝑜𝑟𝑘𝑒𝑟𝑠 𝑁𝑒𝑒𝑑𝑒𝑑 ▪ Seasonal (S) – daily wage
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐿𝑎𝑏𝑜𝑟 𝐻𝑜𝑢𝑟𝑠 ▪ Apprentice (A) – with or without pay
= ▪ Learners (L) (75%)
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 1
R
P
3. Labor performance reports – labor performance
C
is compared with previously set standards
S
4. Appropriate compensation including wage
L
incentive systems – adopted to increase a
Months 3 6 9 12 →
workers’ take home pay and reduce labor cost per
unit at the same time
Hourly Rate Plan
= rate x no. of hours
Phases of Accounting for Labor Cost
1. Timekeeping – determination of the total number
Piece-Rate/Incentive Wage Plan
of hours worked by an employee and how such is
= rate x units produced
accounted for
2. Financial accounting – payroll preparation and
Modified Wage Plan
record-keeping
= minimum hourly wage + bonus if quota is exceeded
3. Cost accounting – allocation of payroll charges to
(if quota not exceeded, difference is added to make-
different jobs, departments, or OH
up guarantee)
Minimum wage = basic pay + cost of living allowance Premium pay – additional compensation for work
Who are exempted from Wage Orders? performed within 8 hours on non-working days
✓ deficit of > 20% or with capital deficiency
✓ agri or < P5M total assets (new business) Rest Days 130%
✓ 10 or less workers (retail/service) Special Days 130%
✓ losses of > 20% of capital due to calamities Rest Day + Special Day 150%
Regular Holiday 200%
Time of payment (LC103) Regular Holiday + Rest 260%
- twice a month at intervals of < 16 days Day
- After force majeure or circumstances have ceased Maximum Daily Hours 8 hours
- No employer shall make payment with less Maximum days a week 5 days
frequency than once a month. Overtime Pay 125% (if beyond 8 hrs)
Undertime not offset by overtime
Regular Holidays Special Holidays
work on any other day
January 1 Night shift differential 110%
Bonus Optional
February 5 25 13th month pay Mandatory

March 16 Holiday pay

With work No work
Fixed monthly basic + holiday basic
April 9 18 19 20
earners premium
May 1 Daily wage basic + holiday no pay
workers premium
June 5 12

July Overtime pay

✓ Those with authorization to work OT
August 12 16 21 26 ✓ Rank and file
✓ Laborers
September X Supervisory positions

Where to charge OT premium

October
Rush Order WIP - customer
Slow production, greater Factory OH
November 1 2 30 volume of work, inadequate
plant capacity
December 8 24 25 30 31 Management’s wrong decision Loss
or management inefficiency
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑟𝑎𝑡𝑒 𝑋 12 𝑚𝑜𝑛𝑡ℎ𝑠 13th month pay (on or before Dec. 24)
𝐷𝑎𝑖𝑙𝑦 𝑟𝑎𝑡𝑒 =
365 𝑑𝑎𝑦𝑠 ✓ Mandatory for employer that has at least 10
employees
✓ Employees rendered service for at least 1
Estimated Equivalent Monthly Rate month
𝐴𝑝𝑝𝑙𝑖𝑐𝑎𝑏𝑙𝑒 𝐷𝑎𝑖𝑙𝑦 𝑅𝑎𝑡𝑒 𝑥 𝑁𝑜. 𝑜𝑓 𝐷𝑎𝑦𝑠
𝐸𝐸𝑀𝑅 =
12 1 year Full month pay
Less than 1 year Prorated average month pay
No. of days
Monthly-paid 365
7-day work week 393.5 (work premium
considered)
6-day work week 313
5-day work week 261
PRODUCT COSTING Employee time sheet – time worked on each job
Job order cost sheet
Product Costing Systems – used to assign - All financial info abt. job (DM, DL, OH, budget)
production/performance costs to products/services - Used to analyze actual with budgeted costs
for reporting purposes
Material Requisition
Job Order Process WIP – Job # XX
MOC XX
For heterogenous and Homogenous/
RMI XX
custom outputs continuous
Acquisition of RM to be used for a specific job
Small quantities Large quantities WIP – Job # XX
Tracks costs by job Track costs by batch MOC XX
by department Accounts Payable XX
CO = job CO = Department
Employee Time Sheet/ Labor
WIP – Job # XX
Methods of Product Costing MOC XX
Must determine first the: Salaries & Wages Payable XX
(1) Cost accumulation system – defines cost
object and cost assignment method Application of OH
WIP – Job # XX
(2) Valuation method – specifies how product
MOC XX
costs are measured
Job Completion
*6 possible combinations of 1 & 2 FGI XX
WIP – Job # XX
Valuation
Actual Normal Standard
Actual DM, Actual DM & Standard DM & LOSSES IN A JOB ORDER COST SYSTEM
Job Order

DL, OH DL, pOHr at DL, pOHr at

assigned at completion or completion or Scrap Waste
Cost Accumulation

period-end period-end period-end - Residuals, fillings, excessive - Left-overs with no further use
trimmings - not saleable
Actual DM, Actual DM & Standard DM & - Broken parts must be discarded
DL, OH DL, pOHr at DL, pOHr at - Cannot be returned to supplier
Process

assigned at completion or completion or defective materials

period-end period-end period-end using - Not suitable for mnfctrg.
using FIFO or using FIFO or FIFO always Can be sold for small amounts
WA WA
Cash/AR
Scrap sales/ OI/ COGS/ FOH/ WIP
Standard cost system recognizes deviations and
corrects error from excess usage. Spoiled Rework
- fully/ partially completed units - do not meet specifications but
that do not meet specifications are repaired and sold as FG
- cannot be repaired (financially
JOB ORDER COSTING unreasonable or technically
impossible)
Job – single/group of unit/s identifiable as being - discarded/ sold @lower prices
produced to distinct customer specifications; client/
engagement/project/contract Charged to:
Particular job - customer standards; salvage value removed from WIP
All Production/ FOH - internal failure/ employee or machine error
- Each job is a cost object
- Costs are accumulated for each job Spoiled Good Inventory XX WIP XX
COGS XX RMI XX
- A job can consist of one or more units of output
FOH XX FOHC XX
- Separate SL for each job WIP XX Wages Payable XX

Material Requisition Form To record completion & shipment To record cost of rework
- Tracks who is responsible for materials
- Verifies flow of material from WH to Dept. to job
PROCESS COSTING Operation Costing
- Hybrid of job-order and process costing
Processing Departments - Commonly used when batches of different
- activities are performed uniformly on all units of products pass through same processing
production department
- homogenous outputs
- products flow in a sequence
- Costs are traced and applied to departments FIFO Method
Flow of Raw Materials - Generally, more accurate than WAM
WIP – Dept. A XX - Does not mix costs of the current period with
WIP – Dept. B XX
RMI XX
costs of the prior period.
- Difference:
Flow of Labor Costs ▪ Computation of EUP
WIP – Dept. A XX ▪ Treatment of beginning inventory costs
WIP – Dept. B XX - Steps:
Salaries & Wages Payable XX
1. Determine EUP needed to complete beg.
Flow of MOC WIP (units X 1-%completion) for both
WIP – Dept. A XX materials and conversion
WIP – Dept. B XX 2. Add 1 to units started and completed
MOC @ applied OH XX
during the month (units TO – WIP, beg.)
Transfers from Dept. A to B 3. Add EUP in WIP, end to compute EUP
WIP – Dept. B XX
WIP – Dept. A XX *Another method
(EUP FIFO = EUP WAM – EU in beg. inv)
Transfers from Dept. B to FGI
Materials Conversion
FGI @ COGM XX Equivalent units - weighted-average method 5,940 5,670
WIP – Dept. B XX Less equivalent units in beginning inventory:
300 units × 40% 120
300 units × 20% 60
Equivalent units - FIFO method 5,820 5,610

Equivalent Units of Production (EUP)

- calculated to measure partially completed units in
beginning and ending inventories 4. Compute
𝐶𝑜𝑠𝑡 𝒂𝒅𝒅𝒆𝒅
𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝑬𝑼 =
𝐸𝑈𝑃 = 𝑢𝑛𝑖𝑡𝑠 𝑥 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝐸𝑈𝑃
*partially completed
5. Assign costs
Assembly Department
Two ways to compute: Cost of Units Transferred Out in June
Materials Conversion Total
1. Weighted-average method (WAM) Cost of Units Transferred Out:
2. FIFO method Cost in beginning WIP inventory $ 6,119 $ 3,920 $ 10,039
Cost to complete beginning WIP
Equivalent units to complete 180 240
Weighted Average Method Cost per equivalent unit $ 20.3816 $ 14.4617
Cost to complete beginning WIP $ 3,668 $ 3,471 7,139
- No distinction between work done in prior or Cost of units started and completed:
current periods; blends them together Units started and completed 5,100 5,100
Cost per equivalent unit $ 20.3816 $ 14.4617
Cost of units started and completed $ 103,946 $ 73,755 177,701
𝑬𝑼𝑷 𝒑𝒆𝒓 𝒅𝒆𝒑𝒕 = 𝑢𝑛𝑖𝑡𝑠 𝑇𝑂 + 𝐸𝑈𝑃 𝑖𝑛 𝑊𝐼𝑃, 𝑒𝑛𝑑 Cost of Units Transferred Out $ 194,879

𝐵𝑒𝑔. 𝑊𝐼𝑃 𝑐𝑜𝑠𝑡 + 𝐶𝑜𝑠𝑡 𝒂𝒅𝒅𝒆𝒅

𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝑬𝑼 = 6. Prepare cost reconciliation report
𝐸𝑈𝑃
Assembly Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning Work in Process Inventory $ 10,039
Costs added to production during the period 199,751
Total cost to be accounted for $ 209,790

Cost accounted for as follows:

Cost of ending Work in Process Inventory $ 15,390
Cost of units transferred out 194,400
Total cost accounted for $ 209,790