PRAYER

COSTACCOUNTING
REVIEW
Basic Concepts and Cost Classifications
Accounting for Materials, Labor, and Overhead
Service DepartmentCosts Allocation
 What is Cost Accounting?

is a branch of accounting that deals with the process of recording and

summarizing the amount of cost that is spent on the company's activities. It
includes all costs of process, product, or service used, provided, and sold.
A cost reflects the amount of resources sacrificed in order for the company
to achieve a certain objective such as creation of goods or rendering of
services in order to earn revenues.
Product Costs

Product Costs are costs identified and incurred by an entity to manufacture a product.
It includes all raw materials used, labor costs incurred, and all other indirect costs.
 Product Costs
Materials Labor Overhead
All raw materials and Salaries and other benefits All indirect costs necessary
other supplies used in provided to all workers. for product conversion that
the manufacturing are not direct materials and
Direct Labor direct labor.
process.
e.g. Cost of salaries paid to
laborers of furniture Indirect Materials
Direct Materials associated directly in the Indirect Labor
e.g. Cost of glass in process. Depreciation of
lightbulb manufacturing equipment in the
Indirect Labor factory
Indirect Materials Salaries paid to all other Insurance of factory
Cost of glue, lubricating factory personnel plant
oils, nails, screws, and necessary in the Maintenance and
manufacturing process but Repairs of equipment
the like.
is not directly related in the Factory Utilities
conversion process.
Direct
Materials Prime
Cost
Direct
Labor
Conversion
Overhead Cost
 Direct
Materials
Direct Labor

Manufacturing
Overhead

TOTAL MANUFACTURING
COST
Period Costs
The entity's operating expenses. They are called as such since they are much more
associated with time periods rather than the manufacturing process. They are all other
expenses not related to manufacturing.
 Expenses incurred in promoting
Marketing and
the entity's products and
Advertising
services.

They include salaries of sales

Selling and
personnel, and delivery
Distribution
expenses.

They include office utilities,

Administrative
depreciation of office PPE,
Expenses
repairs and maintenance of
PPE, and all other expenses in
the office
Variable Costs
A variable cost varies, in total in direct proportion to changes in the level of activity.

Cost of goods sold for a merchandising company

Direct Materials
Direct Labor
Fixed Costs
it is a cost that remains constant, in total, regardless of changes in the level of activity.

Depreciation
Insurance
Property Taxes
Example: Ford Company, the largest American car manufacturer, produces
automobiles which costs the company $250 to make one steering wheel. In order to
run its business, the company incurs $550,000 in rental fees for its factory space.

Let’s take a closer look at the company’s costs depending on its level of
production.
Mixed Costs

A mixed cost contains both variable and fixed cost elements.

y= a + bX
Example
Copytrade plans to lease a copier. The terms of the agreement state that there will be
a monthly lease fee of ₱1,000 plus a charge of ¢0.02 per copy. If Copytrade make 7,000
copies next month, how much would the copier lease cost?

y= a + bX

Total Mixed Cost = Total Fixed Cost + (Variable Cost per Unit * Activity Level)

Total Mixed Cost = ₱1,000 + ( ¢0.02 * 7,000)

= ₱1,000 + 140

Total Mixed Cost = ₱1,140.00

High-Low Point Method
Least Squares Regression Method
Opportunity Costs
Opportunity cost is the potential benefit that is given up when one alternative is
selected over another.

example: A manufacturer gets two orders and can only fulfill one. The first order has a
profit of ₱50 and the second has a profit of ₱75. The manufacturer chooses to fulfill the
second order to maximize the profit and declines the first order.
Sunk Costs
Sunk cost is cost that has already been incurred and that cannot be changed by any
decision made now or in the future.

example: Cost of machinery

Differential Costs
Differential cost is a future cost that differs between any two alternatives.

example: If the cost of alternative A is ₱24,000 per year and the cost of alternative B is
₱22,000 per year. The difference of ₱2,000 would be differential cost.
ACCOUNTING FOR MATERIALS,
LABOR, AND OVERHEAD
 OVERVIEW:
1. Direct Materials are also called raw materials from which
the product is made.

2. Direct Labor of workers who transform the materials into a

finished product. PRODUCT
COSTS
3. Overhead which includes all other costs of transforming the
materials to a finished product.
 Indirect labor
 Indirect materials
 other manufacturing costs
 RAW MATERIALS
INVENTORY WORK IN PROCESS FINISHED GOODS
INVENTORY INVENTORY

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

BEG. BAL. XX XX MATERIALS BEG. XX XX COGMAN

USED BAL. BEG. BAL. XX XX COGS

DM USED XX

PURCHASES XX DL COST XX
COGMAN XX
FOH XX
END. XX
END. BAL. XX BAL. END. BAL. XX
COST FLOW

BEG. WIP XX
ADD: TOTAL MANUFACTURING COSTS XX

TOTAL COSTS PUT INTO PROCESS XX

LESS: ENDING WIP XX
COSTS OF GOODS MANUFACTURED XX

COSTS OF GOODS AVAILABLE FOR SALE XX

LESS: FINISHED GOODS ENDING XX

COSTS OF GOODS SOLD XX
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
RAW MATERIALS Debited for the cost of materials Credited for Direct Materials
purchased added to Work in Process
Credited for Indirect materials
added to Manufacturing
Overhead

Example: Rendon Company purchased 100,000 in raw materials, 80 percent of

materials are direct materials. The company transferred 50% of direct materials
purchased to work in process, and added 20,000 indirect materials to overhead.

Entry:
Raw Materials 100,000
Accounts Payable 100,000

Work in Process 40,000

Overhead 20,000
Raw Materials 60,000
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
Salaries and Wages Payable Credited for Direct labor added to
Work in Process
Credited for Indirect labor added
to Manufacturing Overhead

Example: On July 8, 20xx, Rendon Company incurred direct labor and indirect labor
costs of 50,000 php. and 80,000 php respectively.

Entry:

Work in Process 50,000

Overhead 80,000
Salaries and Wages Payable 130,000
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
Manufacturing Overhead Debited for actual overhead costs Credited for overhead cost
incurred applied to Work In Process
(Underapplied) (Overapplied)

Example: Rendon Company purchased 100,000 in raw materials, 80 percent of materials are direct materials. The
company transferred 50% of direct materials purchased to work in process, and added 20,000 indirect materials to
overhead. It also incurred direct labor and indirect labor costs of 50,000 php. and 80,000 php.,respectively. Other cost
was 90,000 depreciation on building where 80% is directly tied to production facility. The company assigned 172,000
manufacturing overhead to work in process inventory.

Entry:

Work in Process 90,000

Overhead (20,000+80,000+72,000) 172,000
Depreciation Expense 18,000
Raw materials 60,000 Salaries and Wages Payable 130,000
Accumulated Depreciation 90,000

Work in Process 172,000

Overhead Applied 172,000
PREDETERMINED OVERHEAD RATE

POR= ESTIMATED FACTORY OVERHEAD FOR THE PERIOD

ESTIMATED ACTIVITY OF THE ALLOCATION BASE

3,000,000
250,000 labor hours

POR= 12 pesos per labor hour

Actual labor hours worked= 300,000 hrs.

Overhead applied to work in process= 300,000 X 12= 3,600,000
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
WORK IN PROCESS Debited for the cost of direct Credited for the cost of goods
materials, direct labor, and manufactured.
manufacturing overhead applied.
Example: Rendon Company purchased 100,000 in raw materials, 80 percent of materials are direct materials. The
company transferred 50% of direct materials purchased to work in process, and added 20,000 indirect materials to
overhead. It also incurred direct labor and indirect labor costs of 50,000 php. and 80,000 php.,respectively. Other cost
was 90,000 rent on building where 80% is directly tied to production facility. The company assigned 172,000
manufacturing overhead to work in process inventory. Goods with a cost of 200,000 are completed and transferred to
the finished goods warehouse.
Entry:

Work in Process 90,000

Overhead (20,000+80,000+72,000) 172,000
Rent Expense 18,000
Raw materials 60,000 Salaries and Wages Payable
130,000
Accumulated Depreciation 90,000

Work in Process 172,000

Overhead Applied 172,000

Finished goods inventory 200,000

Work In Process 200,000
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
FINISHED GOODS INVENTORY Debited for the cost of goods Credited for the cost of goods sold
manufactured
Example: Rendon Company purchased 100,000 in raw materials, 80 percent of materials are direct materials. The company transferred 50%
of direct materials purchased to work in process, and added 20,000 indirect materials to overhead. It also incurred direct labor and indirect
labor costs of 50,000 php. and 80,000 php respectively. Other cost was 90,000 rent on building where 80% is directly tied to production
facility. The company assigned 172,000 manufacturing overhead to work in process inventory. Goods with a cost of 200,000 are completed
and transferred to the finished goods warehouse. Additionally, goods costing 150,000 are sold at a price of 300,000.
Entry:
Work in Process 90,000
Overhead (20,000+80,000+72,000) 172,000
Rent Expense 18,000
Raw materials 60,000 Salaries and Wages Payable 130,000
Accumulated Depreciation 90,000

Work in Process 172,000

Overhead Applied 172,000

Finished goods inventory 200,000

Work In Process 200,000

Cost of goods sold 150,000

Finished goods inventory 150,000
 Accounting for a Manufacturing Company
ACCOUNT DEBIT CREDIT
COST OF GOODS SOLD Debited for the cost of goods sold

Example: Rendon Company purchased 100,000 in raw materials, 80 percent of materials are direct materials.
The company transferred 50% of direct materials purchased to work in process, and added 20,000 indirect
materials to overhead. It also incurred direct labor and indirect labor costs of 50,000 php. and 80,000
php.,respectively. Other cost was 90,000 rent on building where 80% is directly tied to production facility. The
company assigned 172,000 manufacturing overhead to work in process inventory. Goods with a cost of
200,000 are completed and transferred to the finished goods warehouse. Additionally, goods costing 150,000
are sold at a price of 300,000.
Entry:

Finished goods inventory 200,000

Work In Process 200,000

Cost of goods sold 150,000

Finished goods inventory 150,000

Accounts Receivable 300,000

Sales 300,000
 Raw Materials Work In Process Finished Goods Manufacturing
Inventory Inventory Inventory Overhead
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

100,000 60,000 40,000 200,000 200,000 150,000 20,000 172,000

50,000 80,000
172,000 72,000
EB 40,000
EB- 62,000 EB- 50,000
X

Cost of Good Sold Sales Revenue Payables

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

150,000 300,000 100,000
130,000

230,000

GENERAL LEDGER/ T-ACCOUNTS

 Rendon Company
Cost of Goods Manufactured and Sold Statement
For the year ended, December 31
Direct Materials:
Purchases 80,000
Ending Inventory (40,000)
Direct Materials put into process 40,000
Direct Labor 50,000
Manufacturing Overhead 172,000
Beg. Work in process inventory xxxxxxx

Total cost of Work in Process during year 262,000

Less WIP Inventory 62,000
Cost of Goods Manufactured 200,000
Beg. finished goods inventory xxxxxxxx
Goods Available for sale 200,000
Less ending finished good inventory 50,000
Cost of goods sold 150,000
 Rendon Company
Income Statement
For the year ended, December 31

Sales Revenue 300,000

Cost of goods sold 150,000
Gross Margin 150,000
Expense 18,000
Operating Profit 132,000
Problem 1
Beginning balance, January 31
Raw materials inventory 200,000
Work in Process inventory 150,000
Finished goods inventory 300,000

The company applies overhead cost to jobs on the basis of machine hours worked. For the current year, the company estimated
that it would work 750,000 machine hours and incur 4,500,000 in factory overhead cost.
a. Raw materials purchased on account, 4,100,000
b. Raw materials inventory requisitioned and issued for use in production, 3,800,000 (3,600,000 direct materials and 200,000
indirect materials)
c. Cost incurred for employee services: direct labor, 750,000; indirect labor, 1,100,000; sales commission, 900,000; and
administrative salaries, 2,000,000.
d. Sales travel costs, 170,000
e. Utility costs in the factory, 430,000
f. Advertising costs, 1,800,000
g, Depreciation for the year 3,500,000 (80% relates to factory operations, and 20 % relates to selling and administrative
activities)
h. Factory overhead applied to production. Due to greater than expected demand for its products, the company worked 800,000
machine hours during the year.
i. Goods costing 9,000,000 to manufacture according to their job cost sheet completed during the year.
k. Goods sold on account to customer during the year at a total selling price of 15,000,000. The goods cost 8,700,000 to
manufacture according to their job cost sheets.
QUESTIONS:
1. What is the ending balance of Raw materials?
2. Compute for the factory overhead applied
3. Is the factory overhead underapplied or overapplied
4. Among the labor costs incurred, how much is added to work in process?
ANSWERS:
3. Overapplied.
1. Raw Materials
Factory Overhead Control
Beg. Balance 200,000
Indirect Materials 200,000
Additional Purchases 4,000,000
Indirect labor 1,100,000
Less: Materials put into process 3,800,000
Utility Cost in factory 430,000
Ending Balance 500,000
Depreciation (3,500,000 X 80%) 2,800,000
Actual overhead incurred 4,600,000
2. POR = Estimated total factory overhead control cost
Estimated total machine hours (allocation base)
Applied Overhead- 4,800,000
= 4,500,000
Actual Overhead- 4,600,000
750,000 machine hours
200,000 overapplied
= P6 per machine hour
4. Direct Labor 750,000
800,000 machine hours worked during the year x P6 per machine hour
Factory Overhead applied = 4,800,000
PROBLEM 2
The following information has been taken from the cost records of Rudolf Ranger Company for the past
year:
Raw material used in production 356
Total manufacturing costs charged to production during the year (includes direct material, direct and
overhead equal to 50% of direct labor cost) 686
Cost of goods available for sale
Selling and Administrative expenses

Inventories Beginning Ending

Raw material P75 P55
Work in Process 80 30
Finished Goods 90 105
QUESTIONS:
1. The cost of material purchased during the year was
A. 316
B. 336
C. 360
D. 411

2. Direct labor cost charged to production during the year was

A. 135
B. 215
C. 220
D. 365
3. Cost of goods manufactured was
A. 636
B. 716
C. 736
D. 766
4. Cost of Goods sold was
A. 691
B. 716
C. 721
D. 801
ANSWER:
1. RAW MATERIALS PURCHASED 2. DIRECT LABOR COST CHARGED TO PRODUCTION

TMC 686
RAW MATERIALS
INVENTORY

DEBIT CREDIT LESS: RAW MATERIALS 356

USED
BEG. BAL. 75 356 MATERIALS
USED CONVERSION COSTS 330
PURCHASES ?
END. BAL. 55 LET
LET X
X == DIRECT
DIRECT LABOR
LABOR
LET
LET 0.50X
0.50X == FOH
FOH

WORKBACK X
X ++ 0.50X
0.50X == 330
330
END. BAL 75
ADD:RAW MATERIALS USED 356
=
COGAS 411
LESS: BEG. BAL (75) X
X == 220
220
PURCHASES 336
3. COSTS OF GOODS MANUFACTURED 4. COSTS OF GOODS SOLD

WORK IN PROCESS FINISHED GOODS

INVENTORY INVENTORY
DEBIT CREDIT DEBIT CREDIT
BEG. BAL. 80 ? COGMAN BEG. BAL. 90 ? COGS

TMC 686 COGMAN 736

END. BAL. 30 END. BAL. 105

WORKBACK
WORKBACK
BEG. BAL WIP 80 BEG. BAL FG 90

TMC 686 ADD: COGMAN 736

LESS: END. WIP (30) LESS: END. FG (105)

COGMAN 736 COGS 721

Problem 3

Green Piece Company manufactures wood files cabinets. The following information is
available for June 2016:
Beginning Ending
Raw Material Inventory 6,000 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
PROBLEM:
1. Direct labor is P9.60 per hour and overhead for the month was P9,600. Compute total manufacturing costs for June, if there were 1,500 direct labor hours and
P21,000 of raw material was purchased.
A. P58,500
B. P46,500
C. P43,500
D. P43,100

2.Direct labor is paid P9.60 per hour and overhead for the month was P9,600. What are prime costs and conversion costs, respectively if there were 1,500 direct
labor hours and P21,000 of raw material was purchased?
A. 29,100 and 33,900
B. 33,900 and 24,000
C. 33,900 and 29,100
D. 24,000 and 33,900

3. Direct labor is paid P9.60 per hour and overhead for the month was P9,600. if there were 1,500 direct labor hours and P21,000 of raw material purchased, Cost
of Goods Manufactured is:
A. 49,100
B. 45,000
C. 51,000
D. 49,500

4. Direct labor is paid P9.60 per hour and overhead for the month was P9,600. if there were 1,500 direct labor hours and P21,000 of raw material purchased, how
much is Cost of Goods sold?
A. 64,500
B. 59,800
C. 38,800
D. 53,800
Answers:
1.

BEG. INV PURCHASES END. INV.

RAW 6,000 21,000 (7,500) 19,500
MATERIALS
DIRECT LABOR 9.60 RATE 1,500 HOURS 14,400
FACTORY 9,600
OVERHEAD
TMC 43,500

2.

PRIME COSTS CONVERSION COSTS

DIRECT MATERIALS 19,500 DIRECT LABOR 14,400
DIRECT LABOR 14,400 FOH 9,600
33,900 24,000
3. COSTS OF GOODS MANUFACTURED

WORK IN PROCESS
INVENTORY

DEBIT CREDIT
BEG. BAL. 17,300 49,100 COGMAN

TMC 43,500
END. BAL. 11,700

4. COSTS OF GOODS SOLD

FINISHED GOODS
INVENTORY

DEBIT CREDIT
BEG. BAL. 21,000 53,800 COGS

COGMAN 49,100
END. BAL. 16,300
OVERHEAD SERVICE DEPARTMENT
COSTS ALLOCATION
DIRECT METHOD

The direct method allocates costs of each of the service

departments to each operating department based on each
department’s share of the allocation base.
 SERVICE DEPARTMENT OPERATING DEPARTMENT
MAINTENANCE ADMINISTRATION 1 2
COSTS ₱8,000 ₱4,000 ₱32,000 ₱36,000
MACHINE-HOURS USED 1,000 2,000 ₱1,500 ₱2,500
NUMBER OF EMPLOYEES 100 200 ₱250 ₱150

How much is the predetermined overhead rate for the Maintenance Department?

MAINTENANCE DEPARTMENT COST ₱8,000 ₱8,000

= ₱2 per machine hour
TOTAL MACHINE HOURS (1,500 + 2,500) 4,000

How much is the predetermined overhead rate for the Administration Department?

ADMINISTRATION DEPARTMENT COST ₱4,000 ₱4,000

= ₱10 per employee
TOTAL EMPLOYEE HOURS (250 + 150) 400
 OPERATING DEPARTMENT
MAINTENANCE 1 ADMINISTRATION 2
COSTS ₱32,000 ₱36,000
MACHINE-HOURS USED ₱1,500 ₱2,500
NUMBER OF EMPLOYEES ₱250 ₱150
PREDETERMINED OVERHEAD RATE ₱2 ₱10

How much is the total cost of the Maintenance for the Operating Department 1?
(1,500 total hr x ₱2 per mach hr)= ₱3,000

How much is the total cost of the Maintenance for the Operating Department 2?
(2,500 total hr x ₱2 per mach hr)= ₱5,000
How
D
much is the total cost of the Administration for the Operating Department 1?
(250 employees x ₱10 per employee)= ₱2,500
How much is the total cost of the Administration for the Operating Department 2?
(150 employees x ₱10 per employee)= ₱1,500
 OPERATING DEPARTMENT 1 OPERATING DEPARTMENT 2
MAINTENANCE ₱3,000 ₱5,000
(1,500 total hr x ₱2 per mach hr) (2,500 mach hr x ₱2 per mach hr)
₱2,500 ₱1,500
ADMINISTRATION (250 employees x ₱10 per employee) (150 employees x ₱10 per employee)

D
SERVICE DEPARTMENT OPERATING DEPARTMENT
MAINTENANCE ADMINISTRATION 1 2
COSTS ₱8,000 ₱4,000 ₱32,000 ₱36,000
ALLOCATION OF
(₱8,000) 3,000 5,000
MAINTENANCE
ALLOCATION OF
(₱4,000) 2,500 2,500
ADMINISTRATION
TOTAL COSTS ₱0 ₱0 ₱37,500 ₱42,500
STEP METHOD OF ALLOCATION

This method allocates service costs to the operating

departments and other service departments in a sequential
process. The sequence of allocation generally starts with the
service department that has incurred the greatest costs.
 SERVICE DEPARTMENT OPERATING DEPARTMENT
MAINTENANCE ADMINISTRATION 1 2
COSTS ₱8,000 ₱4,000 ₱32,000 ₱36,000
MACHINE-HOURS USED 1,000 2,000 ₱1,500 ₱2,500
NUMBER OF EMPLOYEES 100 200 ₱250 ₱150
D

How much is the cost per machinery hour for the Maintenance Department?

MAINTENANCE COST ₱8,000 ₱8,000

= ₱1.3333 per
MACHINE HOURS (2,000 + 1,500 +
6,000 machine hour
(all but machine hours) 2,500)
MAINTENANCE COST ₱8,000 ₱8,000
= ₱1.3333 per
MACHINE HOURS (2,000 + 1,500 +
6,000 machine hour
(all but machine hours) 2,500)

How much is the allocated maintenance cost for the Administration Department?
D (2,000 MH x ₱1.3333 per mach hr)= ₱2,667
How much is the allocated maintenance cost for the Operating Department 1?
(1,500 MH x ₱1.3333 per mach hr)= ₱2,000
How much is the allocated maintenance cost for the Operating Department 2?
(2,500 MH x ₱1.3333 per mach hr)= ₱3,333
OPERATING OPERATING
ADMINISTRATION
DEPARTMENT 1 DEPARTMENT 2
MAINTENANCE
2,667 2,000 3,333
(2,000MH X 1.3333) (1,500MH X 1.3333) (2,500MH X 1.3333)
 SERVICE DEPARTMENT OPERATING DEPARTMENT
MAINTENANCE ADMINISTRATION 1 2
COSTS ₱8,000 ₱4,000 ₱32,000 ₱36,000
MACHINE-HOURS USED 1,000 2,000 ₱1,500 ₱2,500
NUMBER OF EMPLOYEES 100 200 ₱250 ₱150
D

How much is the cost per machinery hour for the Administration Department?

ADMINISTRATION COST ₱6,667 ₱6,667

= ₱16.6675 per
EMPLOYEES employee
(250 + 150) 400
(operating departments only)
 ADMINISTRATION COST ₱6,667 ₱6,667
= ₱16.6675 per
EMPLOYEES
(250 + 150) 400 employee hr
(operating departments only)

How much is the allocated Administration Cost for Operating Department 1?

D
(250 employees x ₱16.6675 per employee hr)= ₱4,167
How much is the allocated Administration Cost for Operating Department 2?
(150 employees x ₱16.6675 per employee hr)= ₱2,500

OPERATING DEPARTMENT 1 OPERATING DEPARTMENT 2

ADMINISTRATION
4,167 2,500
(250 employees X 16.6675) (150 employees X 16.6675)
 SERVICE DEPARTMENT OPERATING DEPARTMENT
MAINTENANCE ADMINISTRATION 1 2
COSTS ₱8,000 ₱4,000 ₱32,000 ₱36,000
D

MAINTENANCE COST
(₱8,000) 2,667 2,000 3,333
ALLOCATED
ADMINISTRATION COST
(₱6,667) 4,167 2,500
ALLOCATED
TOTAL COSTS ₱0 ₱0 ₱38,167 ₱41,833
 QUESTION 1

Why do we need to study Cost Accounting?

 QUESTION 2

What is the formula in computing for the Total Mixed

Cost?
QUESTION 3
Problem 1: Abner Corporation has manufactured 100,000 units of compound X in 2019
at the following costs. Labor of P242,500 of which 93% represents direct labor.
Materials of 182,500 of which 90% represents direct materials. Opening work in
process is 88,125. Closing work in process inventory is P67,500. Overhead is applied at
125% of direct labor cost.

1. The cost of goods manufactured is:

A. P 671.50
B. 692,306
C. 651, 036
D. 629, 900
 WORK IN PROCESS INVENTORY

DEBIT CREDIT
BEG. BAL. 88,125 692,306 COGMAN
DIRECT MATERIAL 164,250
USED
(182,500* 90%)
DIRECT LABOR 225,525
COST
(242,500 * 93%)
FOH 281,906
(225,525*125%
END. BAL. 67,500
QUESTION 4
PROBLEM 2 JOURNAL ENTRY

1.Purchases of the month of January – Materials 7,300 and Indirect materials 700

2. Materials requisitioned and issued on a FIFO basis amounted to 7,000 and Indirect Materials
amounted to 1,000

3. Material returned to vendors amounted to 350

ANSWER:
1. Raw materials 8,000
Accounts Payable 8,000

2. Work in Process 7,000

Overhead 1,000
Raw Materials` 8,000
3. Accounts Payable 350
Raw Materials 350
 QUESTION 5

Why do we need to identify the cost driver before

budgeting?