Cost accounting cycle

1. ENZOI Co. had the following transactions in March:

a. Materials were purchased for cash, P400,000.
b. Materials were requisitioned: P330,000 for production and P20,000 for indirect factory used.
c. Total payroll of P400000 was recorded.
d. The payroll was paid.
e. Of the total payroll, P320,000 was direct labor and P80,000 was indirect factory labor.
f. Various factory overhead cos totaling P40,000 were paid in cash.
g. Various factory overhead cost totaling P180,000 were incurred on account.
h. Other factory overhead consisted of P21,000 depreciation, P7,800 expired insurance, and P12,500 accrued
property taxes.
i. Total factory overhead was charged to the work-in-process account.
j. Cost of completed production transferred to storage, P920,000.
k. Sales on account were P800,000, half of which was collected. The cost of goods sold was 75% of the sales
price.

Prepare journal entries for the above transactions.

2. The general ledger of the Pacific Bearings Co. contained the following account, among others, on January:
Finished goods, P30,000; Work-in-process, P60,000, Materials, P50,000.

During January the following transactions were completed:

a. Materials were purchased for cash at a cost of P27,000.
b. Steel in amount of P35,000 was issued for production.
c. Requisitions for indirect materials and supplies amounted to P3,600.
d. The total payroll for January amounted to P54,000, including marketing salaries of P10,000 and
administrative salaries of P6,000. Labor times tickets shows that P34,000 of the labor cost was direct labor.
A payroll clearing account is used.
e. Various indirect manufacturing cost totaling P22,016 were incurred, of which P5,016 were paid in cash.
f. Total factory overhead is charged to Work-in-process.
g. Cost of production completed in January totaled P120,200 and finished goods on January 31 totaled
P30,200.
h. Customers to whom shipments were made during the month totaled for P150,000.

a. Prepare journal entries for these transactions.

b. Determine the January 31 balances of the Finished Goods Inventory, Work-in-process Inventory and
Materials Inventory.

3. AUTUMN Manufacturing incurred manufacturing costs totaling P330,000 in July. Inventories were as follows:
June 30 July 31
Finished goods P450,000 P360,000
Work-in-process 240,000 210,000

Calculate cost of goods sold for July using T-accounts.

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4. GLEAMS Co. uses a normal costing system. Budgeted overhead for the coming year is P2,400,000. Normal
capacity of the company is set at P840,000 direct labor hours. Expected actual activity is P800,000 direct labor hours.
During the year, GLEAMS worked a total P760,000 direct labor hours and actual overhead totaled P2,248,000/
a. Compute the predetermined overhead rate.
b. How much overhead will the company assign to the work-in-process account? Prepare the journal entry
that corresponds to this assignment.
c. Compute the overhead variances and label the variances as under or over-applied overhead. Assuming
the variance is not material, rite the journal entry that disposes of the variances at the end of the year.

5. The KEVIN’S Co.’s January 1 account balances are:

DEBIT
Cash P40,000
Accounts receivable 50,000
Finished goods 19,000
Work-in-process 9,000
Materials 20,000
Machinery 80,000
CREDIT
Accounts payable 31,000
Accrued payroll 4,500
Accumulated depreciation 20,000
Ordinary shares 120,000
Retained earnings 42,500

During January, the following transactions were completed:

a. Materials purchased on account cost P184,000.
b. Miscellaneous factory overhead incurred on account was P53,060.
c. Labor, accumulated and distributed using a payroll was consumed as follows: for direct production,
P121,000; indirect labor, P25,000; sales 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 P95,460.
f. Work finished and placed in stock, P376,000.
g. All but P24,000 of the finished goods were sold, terms 2/10, n/60. The markup was 30% above production
cost. The sale and the receivable are recorded in the gross amount.
h. Of the total accounts receivable, 80% was collected, less 2% discount.
i. A liability was recorded for various marketing and administrative expenses totaling P60,000. Of this amount,
60% was marketing.
j. The check register showed payments of P208,000 for liabilities other than payrolls.

a. Prepare journal entries to record the above transactions.

b. Prepare T-accounts to show the flow of inventory costs.
c. Prepare a cost of goods sold statement.

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6. GOOD Company’s selected account balances for September are as follows:
September 1 September 30
Finished Goods P34,000 30,000
Work-in-process 7,00 ?
Materials and supplies 20,000 15,000
Accrued payroll 13,000 9,000
Accounts receivable 54,000 22,000
Accounts payable 18,000 6,000
Sales 500,000

Additional information:
a. All sales are on account. GOOD’s markup is 40% of sales.
b. The accounts payable account is used for purchase of materials and supplies only.
c. At the end of September, the Work-in-process account had P2,000 materials, P6,000 of direct labor, and
P3,000 of factory overhead charged to it.
d. Overhead are applied to production based on direct labor cost.
e. Actual factory overhead cost for September were:
Supplies P20,000 Miscellaneous P13,000
Indirect labor 55,000 Depreciation 10,000
Insurance 2,000
f. Materials and supplies purchased on account were P65,000.

Using T-accounts, determine:

a. Materials issued to production
b. Direct labor
c. Applied factory overhead
d. Cost of goods manufactured
e. Cost of goods sold
f. Payment of accounts payable
g. Payment of payroll

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 Product Costing:
Job Order Costing System
1. RAINBOW Corp. uses a job order costing system. On September 1, the company had the following account
balances:
Raw materials Inventory P 166,200
Work-in-process Inventory 528,150
Cost of goods sold 2,366,000

Work-in-process inventory is the control account for the job cost subsidiary ledger. On September 1, there were
three accounts in the job cost ledger with the following balances:
Job 75 P 296,600
Job 78 158,400
Job 82 73,150

The following transactions occurred during September:

Sept. 01 Purchased P 470,000 of raw materials on account.

02 Issued P 475,000 of raw materials as follows: Job 75 – P 21,900; Job 78 – P 113,900; Job 82 – P
198,300; Job 86 – P 128,100; indirect material of P 12,800.

15 Prepared and paid the factory payroll for September 1 – 15 in the amount of P 184,250. Analysis
of the payroll reveals the following information as to where labor effort was devoted:
Job 75 2,215 hours P 22,150
Job 78 5,580 hours 55,800
Job 82 6,075 hours 60,750
Job 86 2,770 hours 27,700
Indirect wages 17,850

16 RAINBOW applies manufacturing overhead to jobs at a rate of P 7.50 per direct labor hour each
time the payroll is made.

16 Job 75 was completed and accepted by the customer and billed at a selling price of cost plus 25%.

20 Paid the following monthly factory bills: utilities – P 8,600; rent – P 19,150; and accounts payable
(accrued in August) of P 45,500

30 Recorded additional factory overhead costs as follows: depreciation P 103,250; expired prepaid
insurance, P 17,550 and accrues taxes and licenses, P 6,500

30 Recorded the gross salaries and wages for the factory payroll for September 16 – 30 of P 178,600.
Analysis of the payroll follows:
Job 78 4,420 hours P 44,200
Job 82 5,825 hours 58,250
Job 86 5,990 hours 59,900
Indirect wages 16,250

Prepare journal entries for the transactions for September. Prepare a T-account to determine the cost of each
job.
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2. TABBY CATFOOD, Inc. budgets to sell 11,000 cartons of cat food for each period. For the next period,
management wants to have an ending inventory of 2,000 cartons; beginning inventory for the period is 3,000
cartons. Fixed costs of operations are budgeted to be P 125,000; 50,000 hours of direct labor will be required
for planned production next period. Variable overhead per carton is estimated to be P 2.

Operations for the period are summarized below:

a) Direct materials costing P 31,000 and indirect materials of P 7,600 were purchased on account.

b) Materials requisitioned and factory labor used:

Materials Factory labor Direct labor hours
Job #1 P 1,500 P 62,300 7,570
Job #2 21,800 21,600 5,500
Job #3 2,500 40,200 8,040
Job #4 11,060 81,700 16,200
Job #5 31,960 100,780 12,500
For general factory use 810 900

c) Factory overhead cost incurred on account, P 63,000.

d) Factory machinery and equipment depreciation totaled P 80,000.

e) Jobs finished: Nos. 1, 2 and 4. Jobs 3 and 5: 60% complete; apply factory overhead.

f) Transferred into finished goods storeroom: Nos. 1, 2 and 4.

g) Job Nos. 2 and 4 were shipped and customers were billed for P 75,000 and P 180,000, respectively.

h) Close over- or underapplied factory overhead.

Prepare entries in general journal form to record the summarized operations.

3. UNIX Products, Inc., provided the following data for January 2014.
Materials and supplies:
Inventory, January 1 P 100,000
Purchases on account 300,000
Labor:
Accrued, January 1 30,000
Paid during January 250,000
Factory overhead costs:
Supplies issued from materials 15,000
Indirect labor 35,000
Depreciation 10,000
Other factory overhead costs (all from outside suppliers on account) 145,000
Work-in-process: Job 1 Job 2 Job 3 Total
January 1 balance P 10,000 P -0- P -0- P 10,000
Job cost during January:
Direct materials 40,000 60,000 50,000 150,000
Direct labor 50,000 80,000 70,000 200,000
Applied factory overhead 50,000 80,000 70,000 200,000

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 Job 1 started in December 2013 finished during January and sold to customer for P 210,000 cash.

Job 2 started in January, not yet finished.

Job 3 started in January, finished during January, and now in finished goods warehouse awaiting customer’s
disposition.

Finished goods inventory – Job 025, January 1 - P 110,000 (sold during January at 125% of cost)

(a) Determine the following:

i. Work – in process, January 31
ii. Finished goods, January 31
iii. Cost of goods manufactured – January
(b) Prepare a cost of goods sold statement.

4. The work-in-process account of SMITH Co. showed:

Work-in-process

Materials P 31,000 Finished goods P 75,000

Direct labor 29,500
Factory overhead 23,600

Materials charged to the one job still in process amounted to P 3,200. Factory overhead is applied as a
predetermined percentage of direct labor cost.

a) The amount of direct labor cost in work-in-process, end.

b) The amount of factory overhead in finished goods.

5. LAMB Co. uses a job order cost accumulation. Manufacturing costs for December were:

Work-in-process, December 1 ( Job 50) P 54,000

Materials and supplies requisitions for:
Job 50 P 45,000
51 37,500
52 25,500
Supplies 3,500
Factory labor hours:
Job 50 3,500
51 3,000
52 2,000
Labor costs:
Direct labor wages P 102,000
Indirect labor wages 16,000
Supervisory salaries 5,000
Building occupancy costs 3,500
Factory equipment costs 6,000
Other factory costs 5,000

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 Job 50 and 51 were completed during December. The predetermined factory overhead rate is P4.50 per direct
labor hour.
a) Compute the total cost of Job 50.
b) Determine the factory overhead costs applied to Job 52 during December.
c) Compute the total factory overhead cost applied during December.
d) Determine the actual December factory overhead incurred.
e) Calculate the amount of over – or underapplied overhead for December.

6. PINE Corp. uses a job order costing system in which overhead is applied to jobs at a predetermined rate of 160%
of direct labor cost. During April, the company spent P 69,000 on direct labor related to Job 167. In addition,
the company incurred direct material cost of P 248,000 on this job during the month. Budgeted factory
overhead for the company for the year was P580,000.

If Job 167 has a balance of P 143,500 on April 1, what was the balance on April 30?

7. DIAMOND Metal Fabricators Inc. accumulated fairly large quantities of metal shavings and trimmings from the
products its manufactures. At least once a month, the scrap metal is sold to a local smelter for reprocessing.
This month’s scrap sales on account total P 3,600.

Give the appropriate journal entry to record the sale of the scrap for each of the followings alternatives:
a) The scrap sales are viewed as additional revenue
b) The scrap sales are viewed as a reduction of the cost of goods sold during the period
c) The scrap sales are viewed as a reduction of factory overhead
d) The scrap sales are traceable to individual jobs and viewed as a reduction in the cost of materials used
on the jobs

8. MILLER WOOD Products Co. manufactures custom wooden cabinets and furniture. During the current period,
80 table’s legs were incorrectly shaped on job number 5586 in the lathe Dept. and had to be replaced. Although
the defective table legs cannot be used on the job, they can be sold to a local lumber company for P 1 each. The
cost of 80 defective table legs is:

Materials (80 legs x P 2.50 each) P 200

Labor (2 hours x P 12 per hour) 24
Factory overhead (2 hours x P 24 per hour) 48
Total cost of spoilage on Job No. 5586 P 272

Give the appropriate journal entry to record spoilage cost and the transfer of the spoiled goods to a separate
inventory account.

9. VICTORY Plastics Co. uses a job order cost system to account for its production costs. During the current period,
1,000 chairs were molded and assembled on job number 9823. The total cost incurred on the job is:

Materials P 12,000
Labor (500 hours x P 10 per hour) 5,000
Factory overhead (P 20 per labor hour) 10,000
Total cost charged to job no. 9823 P 27,000

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 Before being transferred to Finished Goods Inventory, the chairs were inspected and 100 were found to be
spoiled. The spoiled chairs cannot be reworked because the defects are embedded in the plastic; however, they
can be salvaged for P 10 each. The company maintains a separate Spoiled Goods Inventory for defective
products and charged the unrecoverable cost of spoilage to Factory Overhead Control.

Determine the cost of job number 9823 to be transferred to Finished Goods Inventory and to Spoiled Goods
Inventory.

10. HARGROVE Sheet Metal Works manufactures custom sheet metal products ranging from cabinets and storage
containers to portable buildings and custom trailers. During the current period, an order for 500 custom storage
containers was begun on Job 308 for Wilmington Air Freight. After 100 units had been completed, the customer
decided to change the design specifications for the containers. The design change was successfully
implemented on the 400 units that were not complete at the date of change order; however, the 100 completed
units could not be reworked to meet the customer’s new design requirements. As a consequence, an additional
100 units had to be manufactured (bringing the total number to 600, 500 met the customer’s specifications and
100 that did not).

The customer does not want that 100 units that do not meet its specifications; however, management of
HARGROVE Sheet Metal Works believes that the spoiled units can be sold in the seconds market for P 100 each.
Spoiled goods are kept in an inventory account that is separate from Finished Goods. The total costs charged
to Job 308 for Wilmington Air Freight are:

Materials P 50,000
Labor (1,200 hours x P 15 per hour) 18,000
Factory overhead (P 30 per labor hour) 36,000
Total cost charged to Job 308. P 104,000

Determine the cost to be transferred to Spoiled Goods Inventory and the cost of the job shipped to the
customer, and then prepare the appropriate journal entry to record the transfer.

11. LINDLE Furniture Inc. manufactures several different designs of outdoor furniture. Production costs are
accounted for using a job order cost system. During the current period, 100 metal tables were manufactured
on Job 275. Costs charged to the job before inspection are:

Materials P 3,500
Labor (150 hours x P 10 per hour) 1,500
Factory overhead (P 12 per labor hour) 1,800
Total cost charged to Job 275 P 6,800

On inspection, it was discovered that an umbrella ring had not been attached to the tables. To correct the
oversight, a small part was welded to the table leg brace and the brace was repainted. The small part cost P
0.50 for each table, and the primer and paint cost P 1 for each table. Each table required ¼ hour of labor.

Prepare the appropriate general journal entry to record the rework and the transfer of the completed tables
to Finished Goods Inventory.

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12. SUPREME Electronics Inc. manufactures gauges and instrument for aircraft. During the current year, an order
for 1,000 units of a custom-designed gauge was begun for the TOMBSTONE Aircraft Corp. The costs incurred on
the job are:
Materials P 20,000
Labor (1,000 hours x P 15 per hour) 15,000
Factory overhead (P 30 per direct labor hour) 30,000
Total cost charged to TOMBSTONE P 65,000

Before taking the delivery of the gauges, engineers at TOMBSTONE Aircraft changed the design specifications
for the gauge. The change required the replacement of a part. The replacement part cost P 1 and required 10
minutes for installation in each gauge. The change affected 1,000 gauges manufactured on the job.

Prepare the appropriate general journal entry to record the rework and the shipments of the completed job
to the customer, assuming the company bills its jobs to customers at 150% of cost.

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 Product Costing:
process Costing System
1. Megan company started producing a product that is processed in two departments – Melting & Mixing
Department, and Molding & Cutting Department. All materials are added at the beginning of the process in the
Melting and Mixing Department. Subsequently, the individual products are cut into lengths and followed by
packaging to be transferred into the finished goods warehouse. Labor and overhead are added continuously
throughout the process.

Megan was puzzled how she was going to determine the value of the products in the work in process and
finished goods inventories. The valuation of the products would affect both the cost of goods sold and the inventory
balances of her company. She asks her best friend Lhoung, a CPA, to help her determine the value of the products
in the work in process inventory and finished goods inventories for financial statement presentation purposes.

Megan has provided Lhoung the following information for its Melting & Mixing Department.

Units:
Beginning inventory (40% complete as to labor and overhead) 25,000
Started during the period 510,000
Completed and transferred to Molding & Cutting Dept. 523,000
Ending inventory (80% complete as to labor and overhead) 12,000

Costs of beginning inventory:

Direct Materials P42,650
Direct Labor 4,113
Overhead 18,365

Current period costs:

Direct Materials P433,500
Direct Labor 75,777
Overhead 263,913

Prepare the cost of production report for the Melting and Mixing Department using weighted average and FIFO
methods.

Prepare the necessary journal entries.

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2. Record the following process costing transactions in the general journal.
a. Purchase of raw materials on account, P8,400.
b. Requisition of direct materials to:
a. Assembly Department P3,800
b. Finishing Department 2,000
c. Incurrence and payment of manufacturing labor, P10,800.
d. Incurrence of manufacturing overhead costs:
Property taxes P1,900 Insurances P1,100
Utilities 4,500 Depreciation 3,400
e. Assignment of conversion cost to the Assembly Department:
Direct Labor P4,700
Factory overhead 2,900
f. Assignment of conversion cost to Finishing Department:
Direct labor P4,400
Factory Overhead 6,200
g. Cost of goods completed and transferred out of Assembly and into Finishing, P10,250.
h. Cost of goods completed and transferred out of the Finishing Department into Finished Goods Inventory,
P15,600.

3. Compute for equivalent units of production in each of the following cases using the average method and FIFO
method:

Case A: Placed in process 80,000 units

In process, end 24,000 units, 1/3 done

Case B: In process, beginning 16,000 units, ¼ done

Placed in process 120,000 units
In process, end 20,000 units, 1/10 done

Case C: Transferred out 96,000 units

In process, end 24,000 units, 2/3 done
In process, beginning ? units, 1/5 done
Placed in process 112,000 units

Case D: Placed in progress 60,000 units

In process, end 8,000 units, ¾ done
In process, beginning 5,000 units, 1/5 done

All the materials are added at the start of the process. Conversion costs are evenly applied
throughout the process.

Case E: Placed in process 60,000 units

In process, July 1 12,000 units, 1/3 done
In process, July 31 20,000 units, 1/5 done

Sixty percent of the materials are added at the start of the process and the remainder,
when the goods are 80% done.

Case F: Eighty percent of the materials are added when the goods in process are ¼ done and the
remainder, at the end of the process.
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4. Kendo Tool Co. manufactures in two departments, Cutting and Assembly. The product is cut out of sheet metal,
bent to shape, and painted in the Cutting Department. Then, it is transferred to the Assembly Department where
component parts purchased from outside vendors are added to the unit. A process cost system is used to account
for work in process inventories. Data related to November operations in the Assembly Department are:
Units:
Beginning inventory (50% materials, 40% labor and overhead) 1,200
Received from Cutting Department this period 2,800
Ending inventory (90% materials, 80% labor and overhead 1,000
Costs:
Beginning Inventory Added this period
From Cutting Department P 17,280 P 40,600
Materials 5,550 30,690
Direct Labor 2,400 16,932
Factory Overhead 3,600 25,398

Prepare a November cost of production report for the Assembly Department using average method and
FIFO method.

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