AE 22: Cost Accounting & Control

General Accounting Procedures for Materials, Labor and Manufacturing Overhead

ACCOUNTING FOR MATERIALS

Purchase of Materials and Supplies

Materials xxxx
Account Payable xxxx

Issuance of Direct Materials

Work in Process xxxx

Materials xxxx

Issuance of Indirect Materials

MOH xxxx
Materials xxxx

ACCOUNTING FOR LABOR

Incurrence of Direct Labor

Payroll xxxx
Accrued Payroll xxxx

Incurrence of Indirect Labor

MOH xxxx
Accrued Payroll xxxx
ACCOUNTING FOR MANUFACTURING OVERHEAD

Two accounts used:

a. Manufacturing Overhead – Control

• accumulates the actual overhead incurred

b. Manufacturing Overhead – Applied

• accumulates the estimated overhead applied to production

• a predetermined rate is used in computing the applied amount using any of
the following as a base:
1. units of production
2. direct material cost
3. direct labor hours
4. direct labor cost
5. machine hours
• used even if there is actual manufacturing overhead since some of the
actual overhead will only be available at the end of the month and overhead
is already needed for costing when production is completed which can
happen during the month

i. Overapplied Overhead
Applied MOH > Actual MOH

ii. Underapplied Overhead

Actual MOH > Applied MOH

• If the over/under application of overhead is adjusted by the end of the

month, it will be charged against Under/overapplied overhead.

• If the over/under application of overhead is adjusted by the end of the year,

it will be charged against Cost of Goods Sold.
ILLUSTRATION

ABC Company has the following balances as of January 1, 2022.

Materials Php 4,900

Work in Process 4,600
Finished Goods 6,000

Purchased Php 7,000 of direct materials and Php 1,000 of indirect materials.

Materials 8,000
Accounts Payable 8,000

The purchased materials were put into process.

Work in Process 7,000

MOH – Control 1,000
Materials 8,000

Payroll for the month amounted to Php 10,000. Php 7,000 for direct labor and Php 3,000 for indirect
labor.

Payroll 10,000
Accrued Payroll 10,000

Work in Process 7,000

MOH – Control 3,000
Payroll 10,000

Electricity is applied to the production at 60% of direct labor.

Work in Process 4,200

MOH – Applied 4,200

By the end of the month, actual electricity consumed amounted to Php 4,000. (Overapplication)

MOH – Control 4,000

Utilities Expense 4,000

MOH – Applied 4,200

MOH – Control 4,000
Under/overapplied MOH 200
 If the adjustment is made by the end of the year.

MOH – Applied 4,200

MOH – Control 4,000
Cost of Goods Sold 200

Alternative Scenario: By the end of the month, actual electricity consumed amounted to Php 4,500.
(Underapplication)

MOH – Control 4,500

Utilities Expense 4,500

MOH – Applied 4,200

Under/overapplied MOH 300
MOH – Control 4,500

If the adjustment is made by the end of the year.

MOH – Applied 4,200

Cost of Goods Sold 300
MOH – Control 4,500