Philippine Copyright 2006 by GOODWILL TRADING CO., INC. and NENITA A. DEANO-MEJORADA ISBN: 978-971-12-0276-7 Reprinted by: COR-ASIA, Inc. ALL RIGHTS RESERVED. Any copy that does not bear the signature of the author or her representative will be considered as having come from an unauthorized source.CONTENTS Poges CHAPTER I - Review of the Non-Cost System 1 Learning Objectives Nature and Characteristics of a Manufacturing Firm; The Non- Cost System; Materials Cost; Labor Cost; Manufacturing Expenses; Inventories in a Manufacturing Firm; Cost of Goods Sold; Chart of Accounts for a Manufacturing Firm, Non-Cost System; Journal Entries under the Non-Cost System; Statementof Cost of Goods Sold; ‘The Manufacturing Work Sheet. Assignment Material: Questions; Exercises; Multiple Choice Problems. CHAPTER I - Introduction to the Cost System; Job Order Costing 2B Learning Objectives Cost Accounting Defined; Purposes of Cost Accounting; Cost Accounting, Financial Accounting and Management Accounting; Uses of Cost Data; The Cost System; F: Overhead to Production; Chart of Accounts, Cost System; Journal Entries, Per- petual and Periodic Inventory Methods; The Factory Ledger; Job Order Costing and Process Costing; Job Order Costing; Elements of Product Cost in Job Order Costing; Use of Predetermined Factory Overhead Rate; The Job Order Cost Sheet; Work in Process and Cost Sheets; Modified Cost Accounting System. Assi; nt Material: Questions; Exercises; Multiple Choice CHAPTER III - Accounting for Materials Cost 61 Learning Objectives Control of Production Cost Defined; Control of Materials Cost; Issuance of Materials and Subsequent Returns; General Ledger Accounts and Subsidiary Record Entries; Stores Cards and Bin Cards; Purchase Discounts; Freight In; Materials Handling Cost; ‘The Five-Column Stock Card; Average Costing Method: Adjustment Arising from Returns; Scrap Materials; Spoiled Goods; Defective Goods; Loss from Spoilage and Reprocessing Cost as Period Cost; ‘Treatments for Loss from Spoilage and Reprocessing Cost Com- pared. Assignment Material: Questions; Exercises; Multiple Choice312 Chapter X As stated earlier, this method is often called the weighted average method which is quite misleading because all the other methods make use of the weighted average by considering the units of production for each product. Application of the Method in a Factory of Two of More Departments. In cases wherein the common processing of joint products occur in twoormoredepartments, the factory cost in each department is allocated based on the relative number of points for the products, Each product’s unit costs from the different departments are added to arrive at its total production cost per unit. Example: Products M and P are produced from common processes in Departments Tand II. The production data for January, 19G are as follows: Department I Department IL Equivalent Points Equivalent Points Units Product M 10,000 8 8,000 6 6,000 Product P 15,000 7 12,000 4 10,000 Factory cost P30,000 28,000 ‘The computation for allocated joint cost and total production cost per unit for each product is shown below. In the said computation, allocated factory cost in each depart- ment is divided by the corresponding equivalent production to arrive at the departmen- tal unit cost, The Lotal cost of goods manufactured is computed by multiplying the total production cost per unit by the number of units completed. PREDETERMINED INDEX OF PRODUCTION: TWO CONSECUTIVE DEPARTMENTS No. of Equiv. pts. per Total No. Allocated Prod. unit _of Points % factory cost. Unit cost Department I Product M 10,000 8 80,000 43.24% P12,972 P1.2972 Product P 15,000 7 105,000 56.18% 17,028 1.1352 185,000 30,000 Department II ProductM 8,000 6 48,000 50.00% 14,000 1.7500 ProductP 12,000 4 48,000 50.00% 14,000 1.1667 96,000 10.00% 28,000 Total production cost per unit: Product M 9.0472 Product P 2.3019Joint Produets and By-Products 313 Quantity Changes in Subsequent Processing When there are subsequent changes in quantity (increases and losses), the number of units used in arriving at the weighted average in the allocation should be as follows: Market (sales) Quantity Used in Allocation value method. - Units of production from joint processing as adjusted for the expected increase/loss in subsequent departments (or units expected to be sold upon completion) Average unit cost method — Units of production from joint processing Quantitative method ~ Units of production fram joint processing Index of pro- duction method ~ Units of production from joint processing Allocation of joint cost using the adjusted quantities under the first method is illustrated on page 309. Cost of Production Report with Joint Products When there are joint products, the selective flow of cost is reflected on the cost of production report. Costs transferred out from the common process as different products (or to different departments) are described as such. ILLUSTRATIVE PROBLEM C: Cost of Production Report, Joint Cost Allocation Based on Units of Production In the factory of Nagearlan Mfg. Co,, materials are placed in process in Department I. From Department I, work in process is distributed as follows: 60% to Dept. II for further processing into Product A 30% to Dept, III for further processing into Product B 10% waste (or normal loss) Quantity data; Deptt Dept. Dept. I Placed in process 5 tons In process, March 31 5 ton .2ton Stage of completion 25% 40% Cost data: Materials 22,500 Labor 10,823 35,100 P27,405 Factory overhead 9,000 8,775 5,220 Factory cost ineurred in Dept. Lis allocated brsed on the units of production. 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