Lecture.docx

COST ACCOUNTING AND COST MANAGEMENT 1 1

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

REVIEW OF THE NON-COST SYSTEM Non-cost accounting system – the accounting system adopted by the management of a manufacturing firm if they are interested only in the total production cost and the year-end financial statements NATURE AND CHARACTERISTICS OF A MANUFACTURING FIRM -

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Manufacturing firms Buys raw materials to convert them into finished goods with the use of manpower and plant facilities. Upon completion, the goods are transferred to the stockroom for delivery to customers

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Trading firms Merely procures goods from manufacturers or from other traders

In general, a manufacturing firm requires a longer period to make goods available as compared to a trading concern

Plant facilities – generally consist of machinery, equipment and furniture housed in an edifice called the factory building which may be owned or leased by the company. Employees – include factory workers who are directly supervised by foremen (may be reporting directly to the production manager). In bigger companies, the production division may be divided into different departments. These departments may be classified into: -

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A. Producing Departments – where actual manufacturing operations are performed and  Examples:  Machining Department  Assembling Department  Painting Department B. Service Departments – which facilitate the manufacturing processes by rendering services to the producing departments and other service departments  Examples:  Materials handling  Building maintenance 

Power departments

The manufacturing process is repeated throughout the year with the volume of output dependent on the estimated demand for the product. Flow of Cost – this term refers to the movement of items of cost. See illustration on the next page.

FLOW OF COST IN A MANUFACTURING FIRM

COST ACCOUNTING AND COST MANAGEMENT 1 2

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Stockroom Finished Goods Invty., Beg. Cost of Goods manufactured Finished goods available for sale Finished goods invty., end Cost of Goods Sold

P xxx xxx P xxx (xxx) P xxx

Customers Accounts Receivable (at selling price Cost of Goods Sold ( at cost)

Producing Departments Work in process invty., beg. P xxx Manufacturing cost: Materials cost P xxx Labor cost xxx Factory overhead xxx xxx P xxx Work in process invty., end (xxx) Cost of goods manufactured P xxx

Materials

Labor Factory Overhead

Materials are placed in process with labor and factory overhead added to convert them into finished goods. While still uncompleted, the goods are called work in process. Upon sale of finished goods, they become part of cost of goods sold which is matched against revenue in income measurement. THE NON-COST SYSTEM Under the non-cost system, -

-

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Flow of cost is not accounted for in detail. Periodic inventory method is used - so that cost of goods manufactured and cost of goods sold can only be arrived at after an inventory taking of raw materials, work in process and finished goods. Paper work is minimal – perpetual records of the flow of cost are non-existent. Product unit cost = Cost of Goods Manufactured Total number of units produced Not expensive to maintain inasmuch as internal transactions are not recorded and volume of paper work is not as much as that under the cost system. Ineffective in controlling costs and in assisting management in the decision making process considering the delay in the determination of unit and inventory costs. o May even result in  undetected pilferages of materials,  unnecessary wastages  inefficiency of manpower Note: The voucher system may be used under both non-cost and cost systems inasmuch as it is a tool in controlling payables and disbursements and does not affect inventory accounts.

MATERIALS COST

COST ACCOUNTING AND COST MANAGEMENT 1 3

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

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Refers to the cost of the different items needed to produce the finished product. Examples: o Lumber, varnish and glue in the manufacture of furniture o Metal parts, lubricant and paint in car assembly o Sulphate ammonia and superphosphate in making fertilizer

LABOR COST -

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Refers to the cost of labor expended in the manufacturing processes. Under non-cost system, the account “factory salaries and wages” often substitutes for labor cost Examples: o Wages of sewers (in garments factory) o Wages of Carpenters ( in housing projects) o Wages of lathe machine operators ( in machine shops) Payroll Account- a temporary account used for the total amount earned by employees. o Its use facilitates the recording of payroll vouchers pending their analysis and subsequent recording of their breakdowns.

MANUFACTURING EXPENSES ( Factory overhead / Factory burden) -

Refers to the different factory costs not classified as raw materials or as labor cost. Examples: Factory supplies –

Depreciation – Depreciation –

refers to those items that are used in keeping the factory in workable condition and the machinery, in working condition. Examples: Rags, floor wax, lubricants, deodorants factory building factory machinery and equipment

brushes,

room

Factory employee benefits – this account is charged for all the cost of benefits accruing to factory employees such as the employers’ contributions for SSS and cost of vacation and sick leaves. The employers’ contributions to SSS, Medicare and Pag-IBIG and the employees compensation premiums may also be charged to “ SSS Contributions”, Medicare Contributions”, “Pag-IBIG Contributions” and “Employees’ Compensation Premiums”, respectively. Each manufacturing expense account may be provided for in the general ledger or a controlling account (such as factory overhead, manufacturing expenses or factory burden) may be used. Factory Overhead Control – This account is used as a controlling account for all factory overhead items so that it must be supported by subsidiary records often called the factory overhead analysis sheet. 

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INVENTORIES IN A MANUFACTURING FIRM Comparison of inventory accounts: Manufacturing vs Trading Firms Manufacturing firms

Trading firms

COST ACCOUNTING AND COST MANAGEMENT 1 4

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

-

-

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Raw Materials Inventory – consists of all the items of materials that are needed in the manufacture of the finished product Work in Process Inventory – refers to goods still in the factory and not yet completed Finished Goods Inventory – refers to goods already processed and are ready for sale.

- Merchandise Inventory ( goods purchased and made available for sale)

Cost of Goods Sold –

generally used for the items manufactured and sold.

Cost of Sales –

terms used for items sold in a trading business. In computing for cost of goods sold, cost of goods manufactured substitutes for net purchases

Cost of Goods Manufactured –

arrived at by deducting the accumulated cost of ending work in process from the total of manufacturing (or factory) costs incurred during a period and cost of beginning work in process. (Refer to the illustration)

Materials Used –

arrived at by deducting the ending inventory of raw materials from total raw materials available for use. (Refer to the illustration on the next page)

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EQUATIONS IN THE STATEMENT OF COST OF GOODS SOLD Based on the discussions in the preceding paragraphs, the equations must be as follows: Materials invty., beg. Work in process invty., beg Net purchases Direct labor cost Factory overhead

Cost of Goods Manufactured Finished goods invty., beg.

} { } {

Materials invty., end. Work in process invty., end

=

Cost of goods manufactured

Finished goods invty., end Cost of goods sold

=

The foregoing equations are observed in the preparation of the manufacturing worksheet and can serve as guides in solving problems with unknowns.

Illustration: Comparison of Cost of Goods Sold of Manufacturing Firm and Cost of Sales of Trading/Merchandising firm COST OF GOODS SOLD – Manufacturing firms Hangya Manufacturing Corp. Statement of Cost of Goods Sold For the Year Ended December 31, 2013

COST OF SALES – Merchandising/Trading firms ABC Trading Co. Cost of Sales For the Year Ended December 31, 2013

COST ACCOUNTING AND COST MANAGEMENT 1 5

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Raw materials cost Inventory, Jan 1 P 8,500 Add: Net Purchases Purchases P 50,000 Add: Freight-in 1,200 Less: Purchase Returns and allo 2,500 48,700 Raw materials available for use P57,200 Less: Inventory, Dec 31 6,000 Raw materials used P51,200 Labor Cost 13,400 Factory Overhead/ Manufacturing expenses: Depreciation expense P 19,000 Factory repairs 6,000 Employees’ benefits 1,200 Factory supplies 1,500 27,700 Manufacturing Cost P 92,300 Add: Work in Process Invty., Jan 1 10,000 Total Goods Placed in Process P102,300 Less: Work in Process Invty., Dec 31 12,500 COST OF GOODS MANUFACTURED P 89,800 Add: Finished Goods Inventory, Jan 1 5,500 Total Goods Available for Sale P 95,300 Less: Finished Goods Inventory, Dec. 31 9,000 COST OF GOODS SOLD P 86,300

Merchandise Invty., Jan 1 P5,000 Add: Net Purchases Purchases P50,000 Add: Freight in 2,000 Less: Purchase ret. 1,000 51,000 Total Goods Available for Sale P 56,000 Less: Merchandise Invty. Dec 31 7,000 COST OF SALES P 49,000

In computing for unit cost, the figure for cost of goods manufactured is simply divided by the number of produced so that if there were 10,000 units of output, unit cost must be 8.98 (89,800 divided by 10,000 units). CHART OF ACCOUNTS FOR A MANUFACTURING FIRM, NON-COST SYSTEM -

A list of all the account titles to be used in recording a company’s transactions. Classified and listed based on the position of each in the financial statements

SAMPLE CHART OF ACCOUNTS, NON-COST SYSTEM CHART OF ACCOUNTS FOR A MANUFACTURING FIRM Balance Sheet Accounts (10-99) Assets ( 10-99 ) Current Assets (10-99) 11 Cash in Bank 44.1 Accumulated Depreciation – Machinery and Equipment – Factory 12 Cash on Hand 46 Delivery Equipment 13 Petty Cash Fund 46.1 Accumulated Depreciation – Delivery Equipment 14 Marketable Securities 51 Automobiles 15 Notes Receivable 52 Accumulated Depreciation – Automobiles

COST ACCOUNTING AND COST MANAGEMENT 1 6

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM 15-1 16

Notes Receivable – Discounted Accounts Receivable

16-1 Accounts Receivable 20 Finished Goods inventory 21 Work in Process Inventory 22 Materials inventory 26 Prepaid Insurance 39 Miscellaneous Prepaid Items Plant, Property and Equipment (40-69) 41 Land 42 Buildings 42.1 Accumulated Depreciation – Buildings 44 Machinery and Equipment – Factory

56 56.1 Intangible 71 72 79

Office furniture and fixtures Accumulated Depreciation – Office Furniture and Fixtures Assests (70-79) Goodwill Patents Other Intangible Assets

Other Assets (80-89) Other Assets (90-99)

Liabilities and Capital (100-199) Current Liabilities (100-149) Long-Term Liabilities (150-169) 101 Noted Payable 151 Loans Payable 102 Accounts Payable 156 Other Long-Term Debt 103 Vouchers Payable 104 Accrued Payroll Capital (170-199) 105 Other Accrued Liabilities 171 Preferred Stock 106 Withholding Taxes Payable 172 Common Stock 107 Medicare Contributions Payable 172.1 Treasury Stock 108 Pagibig Contributions Payable 176 Premium on Preferred Stock 109 Compensation Insurance Payable 177 Premium on Common Stock 110 Estimated Income Tax Payable 191 Retained Earnings 116 Long- Term Due Within One Year 121 Dividends Payable Income Statement Accounts (200- 699) Sales (200-249) 201 Sales 201.1 Sales Returns and Allowances 201.2 Sales Discounts Cost of Goods Manufactured (250-269) 251 251 252 253

Cost of Goods Manufactured Materials Purchases Purchase Returns and Allowances Freight In

429 431 435 436 437 451 452 499

Insurance Expense Store Supplies Gasoline and Oil Repairs and Maintenance-Buildings Repairs and Maintenance – Delivery Van Depreciation Expense – Buildings Depreciation Expense – Delivery Van Miscellaneous Selling Expense

General and Administrative Expense (500599) Cost of Goods Sold (270-299) 251 Cost of Goods Sold

501

Factory 301 302 306 316 317 318 319

502 503 504 516 517 518 519 525 526

General and Administrative Expense Control Salaries-General and Administrative Salaries – Clerical Help Overtime Premium SSS Contributions Medicare Contributions Pag-ibig Contributions Employees’ Compensation Premiums Telephone and Telegraph Light, Power and Water

529 531 535

Insurance Expense Office Supplies Gasoline and Oil- Buildings

325 326 329

Overhead ( 300-399) Factory Overhead Control Salaries-Factory Overtime Premium SSS Contributions Medicare Contributions Pagibig contributions Employees’ Compensation Premiums Telephone and Telegraph Light, Power and Water Insurance Expense

COST ACCOUNTING AND COST MANAGEMENT 1 7

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM 331 335

Factory Supplies Fuel

536 537

336

Repairs and Maintenance – Buildings Repairs and Maintenance – Machinery and Equipment Depreciation Expense- Buildings

551

337 351 352

Depreciation Expense- Machinery and Equipment Miscellaneous Factory Overhead

399 Selling 401 402 403 404 405 411 416 417 418 419 425 426

Expenses (400-499) Selling Expenses Control Salaries – Sales Supervision Salaries – Salesgirls Salaries – Clerical Help Sales Commissions Delivery Expense SSS Contributions Medicare Contributions Pagibig Contributions Employees’ Compensation Premiums Telephone and Telegraph Light, Power and Water

Repairs and Maintenance – Buildings Repairs and Maintenance – Office Furniture and Fixtures Depreciation Expense – Buildings

552

Depreciation Expense – office Furniture and Fixtures 599 Miscellaneous General and Administrative Expenses Other Income (600-619) 601 602 603 604 605

Income from Investments Interest Income Rental Income Commission Income Miscellaneous Income

Other Expense (620-629) 621 Interest Expense Income Deductions (630-639) 631 Provisions for Income Tax Temporary Account 700

Payroll

JOURNAL ENTRIES UNDER THE NON-COST SYSTEM The entries under the non-cost system are the following a.

Materials purchases on account by Hangya Mfg. Corp for 2013 amount to P 50,000. P Materials Purchases 50,000.00 P Vouchers Payable 50,000.00 b. Purchase returns and allowances, P 2,500. Vouchers Payable

c.

2,500.00

Purchase Returns and Allo. Freight in P 1,200. Freight in

2,500.00

1,200.00

Vouchers Payable 1,200.00 Payment of payroll for P 22,400, net of the following deductions: withholding taxes - P d. 2,200; SSS premiums - P 1,100; medicare premiums - P 500; Pag-IBIG - P 300; advances to employees - P 700; and union check-off - P 1,200. Payroll

28,400.00

Withholding Taxes Payable

2,200.00

SSS Premiums Payable

1,100.00

Medicare Premiums Payable

500.00

Pag-IBIG Premiums Payable

300.00

Advances to Employees

700.00

COST ACCOUNTING AND COST MANAGEMENT 1 8

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Union Fees Payable

1,200.00

Vouchers Payable

22,400.00

Vouchers Payable

e.

f.

22,400.00

Cash 22,400.00 Breakdown of the payroll: Factory - P 13,400; sales - P 8,000; and, office - P 7,000. Factory Salaries and Wages

13,400.00

Sales Salaries and Wages

8,000.00

Office Salaries and Wages

7,000.00

Payroll 28,400.00 Payment of the following: factory supplies - P 1,500; factory repairs - P 6,000; and, store furniture P 12,000. Factory Supplies

1,500.00

Factory Repairs

6,000.00

Store Furniture

12,000.00

Vouchers Payable Vouchers Payable g .

19,500.00 19,500.00

Cash 19,500.00 Remittance of SSS, Medicare and Pag-IBIG premiums together with the employer's counterpart contributions and workmen's compnesation insurance premiums ( SSS - P 1,300; Medicare - P 500; Pag-IBIG - P 300; and compensation premiums - P 300). The employer's contributions are to be charged as follows: factory - 50%; office - 30%; and sales, 20%. Employees' Benefits - Factory

1,200.00

Employees' Benefits – Sales

720.00

Employees' Benefits – Office

480.00

SSS Premiums Payable

1,300.00

Medicare Premiums Payable

500.00

Pag-IBIG Premiums Payable

300.00

Workmen's Compensation Premiums Payable

300.00

SSS Premiums Payable

2,400.00

Medicare Premiums Payable

1,000.00

Pag-IBIG Premiums Payable

600.00

Workmen's Compensation Premiums Payable

300.00

Vouchers Payable Vouchers Payable Cash

4,300.00 4,300.00

COST ACCOUNTING AND COST MANAGEMENT 1 9

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM 4,300.00 h .

Sales, P 150,000 Accounts Receivable

i.

150,000.00

Sales Sales returns and allowances, P 5,500

150,000.00

Sales returns and allowances

j.

5,500.00

Accounts Receivable 5,500.00 Payment of the following expenses: office supplies - P 600; advertisements - P 800; delivery expense P 2,000; rentals for store space - P 3,000; and, rentals for office space - P 2,000. Office Supplies Expense

600.00

Advertising Expense

800.00

Delivery Expense

2,000.00

Rent Expense – Sales

3,000.00

Rent Expense – Office

2,000.00

Vouchers Payable

k.

8,400.00

Vouchers Payable 8,400.00 Cash 8,400.00 Provision for depreciation: factory building - P 11,000; factory machinery and equipment - P 8,000; store furniture - P 4,500; and, office furniture and equipment - P 5,000. Depreciation Expense – Factory

19,000.00

Depreciation Expense – Sales

4,500.00

Depreciation Expense – Office

5,000.00

Accum. Depn – Factory Bldg.

11,000.00

Accum. Depn – Factory Machinery and Equipment

8,000.00

Accum. Depn – Store Furniture

4,500.00

Accum. Depn – Office Furniture and Equipment

5,000.00

The closing entries are made considering the following inventory figures: Raw Materials Work in Process Finished Goods l.

January 1 P 8,500 10,000 5,500

December 31 P 6,000 12,500 9,000

To close the manufacturing accounts and take up the ending inventories of raw materials and work in process ( or to set up the cost of goods manufactured): Manufacturing Summary ( or Cost of goods manufactured) 89,800.00 Work in Process Inventory, Dec 31

12,500.00

Raw Materials Inventory, Dec 31

6,000.00

Purchase Returns and Allo.

2,500.00

COST ACCOUNTING AND COST MANAGEMENT 1 10

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Work in Process Inventory, Jan 1 Raw Materials Inventory, Jan 1 Raw Materials Purchases Freight In Factory Salaries and Wages Employees' Benefits – Factory Factory Supplies Factory Repairs Depreciation Expense - Factory m .

10,000.00 8,500.00 50,000.00 1,200.00 13,400.00 1,200.00 1,500.00 6,000.00 19,000.00

To set up cost of goods sold: Cost of Goods Sold

86,300.00

Finished Goods Inventory, Dec 31 9,000.00 Finished Goods Inventory, Jan 1 Manufacturing Summary (Cost of Goods Manufactured)

5,500.00 89,800.00

n.

To close the remaining nominal accounts to income and expense summary: Sales 150,000.00 Cost of Goods Sold 86,300.00 Sales Return and Allo 5,500.00 Sales Salaries and Wages 8,000.00 Office Salaries and Wages 7,000.00 Employees' Benefits – Sales 720.00 Employees' Benefits - Office 480.00 Rent Expense – Sales 3,000.00 Rent Expense – Office 2,000.00 Office Supplies Expense 600.00 Advertising Expense 800.00 Delivery Expense 2,000.00 Depreciation Expense – Sales 4,500.00 Depreciation Expense – Office 5,000.00 Income and Expense Summary 24,100.00

o.

To close net income to retained earnings: Income and Expense Summary 24,100.00 Retained Earnings

24,100.00

Instead of entries l, m and n, the accounts may simply be closed to income and expense summary as follows: Finished Goods Inventory, Dec 31 9,000.00 Work in Process Inventory, Dec 31 12,500.00 Raw Materials Inventory, Dec 31 6,000.00 Sales 150,000.00 Purchase Returns and Allo. 2,500.00 Sales Returns and Allo. 5,500.00 Finished Goods Inventory, Jan 1 5,500.00 Work in Process Inventory, Jan 1 10,000.00 Raw Materials Inventory, Jan 1 8,500.00

COST ACCOUNTING AND COST MANAGEMENT 1 11

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Raw Materials Purchases Freight In Factory Salaries and Wages Employees' Benefits - Factory Factory Supplies Factory Repairs Depreciation Expense - Factory Sales Salaries and Wages Office Salaries and Wages Employees' Benefits – Sales Employees' Benefits - Office Rent Expense – Sales Rent Expense – Office Office Supplies Expense Advertising Expense Delivery Expense Depreciation Expense - Sales Depreciation Expense - Office Income and Expense Summary

50,000.00 1,200.00 13,400.00 1,200.00 1,500.00 6,000.00 19,000.00 8,000.00 7,000.00 720.00 480.00 3,000.00 2,000.00 600.00 800.00 2,000.00 4,500.00 5,000.00 24,100.00

EXERCISES Exercise1: Theory (True or False) 1. Manufacturing costs are materials cost, labor cost, factory overhead, and manufacturing expenses. 2. The periodic inventory method is used under the non-cost system so that cost of raw materials used, cost of goods manufactured, and cost of goods sold can be easily determined without the need for a physical count of the resources. 3. Under the cost system, the raw materials cost figure is apt to include some items of materials even if they do not form part of the finished product.

COST ACCOUNTING AND COST MANAGEMENT 1 12

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

4. Under the non-cost system, unit cost for the current production cannot be promptly estimated because of inadequate paper work. 5. There must be a decrease in raw materials inventory when raw materials purchases exceed cost of materials used. 6. Cost of goods sold that exceeds cost of goods manufactured results in a decrease in finished goods inventory. 7. The synonyms for factory overhead are manufacturing expenses and factory expenses. 8. In the preparation of the manufacturing worksheet, beginning inventories of raw materials and work in process are debits while the ending inventories are credits. 9. In the preparation of the manufacturing worksheet, all items that are added in the statement of cost of goods manufactured are extended as debits and all items that are deducted, as credits. 10.Under the non-cost system, journal entries are made for issuances of materials and completion of goods. 11.Examples of factory overhead are supervision, depreciation of factory machinery and factory fuel and oil. 12.Pilferages of materials and smuggling out of finished goods cannot be easily detected under a non-cost system. Exercise 2. Equations in the Statement of Cost of Goods Sold Compute for the unknown or unknowns in each of the following cases: Case A P Cost of goods manufactured 15,000 Cost of goods sold 25,000 Finished goods invty., Jan 1 22,500 Finished goods invty., Dec 31 ? Case B Net purchases ? Work in process invty., Jan 1 ? Work in process invty., Dec 31 15,500 Raw materials used ( 60% of mfg. costs) ? Raw materials invty., Jan 1 7,500 Raw materials invty., Dec 31 9,000 Cost of goods manufactured 73,000 Labor cost 17,500 Factory overhead 12,500 Case C Cost of goods manufactured 35,000 Work in process invty., Jan 1 8,000 Work in process invty., Dec 31 ? Raw materials used 20,000 Labor cost 10,000 Factory overhead ( 50% of prime cost) ? Case D Cost of goods manufactured 52,500 Cost of goods sold ? Raw materials used 25,000 Factory overhead ? ( Work in process inventory decreased by P 10,000 while finished goods inventory increased by P 7,500. Labor cost is 50% of raw materials used.) Case E Finished goods invty., Jan 1 P 10,000 Finished goods invty., Dec 31 6,000 Raw materials used 37,500 Labor cost 17,500

COST ACCOUNTING AND COST MANAGEMENT 1 13

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM Factory overhead 16,000 Cost of goods sold 78,000 Work in process invty., Jan 1 ? Work in process invty., Dec 31 ? (Ending work in process inventory is 10% of cost of goods manufactured.) Exercise 3: Journal Entries

Make the journal entries for Durian Mfg. Co. Based on the following information. The firm has adopted the voucher system. a. Materials purchases, P 37,500. b. Purchase returns and allowances, P 2,500 c. Payroll: Total P 32,500 Deductions: SSS premiums P 875 PhilHealth 415 Pag-Ibig 150 Withholding taxes 600 Advances to employees 3,250 Union check-off 1,500 6,790 Net amount P 25,710 d. Breakdown of the payroll: factory, 55%, sales, 25% and office, 20%. e. Disbursements made: Insurance premiums – factory building and contents P 1,250 Lubricants, rags, brooms and insecticide 500 Meralco bill 2,050 Manila Water bill 1,000 (Shares of office and sales in light, power and water expenses are P 200 and P 150, respectively). f. Sales on account, P 150,000. g. Sales returns and allowances, P 3,000. h. Payments: Computer ink, pencils, and other office supplies P 900 TV and radio advertisements 3,000 Plastic bags, masking tape and other store su pplies 1,000 i. The premium for employees’ compensation (EC) insurance of P 300 and the employer’s counter part contributions for the following are taken up : SSS, P 1,000, PhilHealth, P 550, Pag-IBIG, P150. Distribution: factory, 60%, sales, 30% and office, 10%. j. The total contributions to SSS, PhilHealth and Pag-IBIG and the EC premiums are remitted to the respective offices. k. Income taxes withheld are remitted to the BIR. l. Collections from customers, P 90,000. m. Depreciation charges: factory building, P 7,000; factory machinery and equipment, P 3,000; office furniture and equipment, P 2,500; delivery van, P 2,300; and, store furniture, P 2,000. n. Accrual of salaries and wages: factory – P 3,000; sales, P 1,500, and office – P 800. o. Ending inventories: Raw materials P 10,000 Work in process 7,500 Finished goods 9,500 p. The beginning inventories are closed: Raw materials P 9,000 Work in process 8,500 Finished goods 5,000 q. The remaining manufacturing accounts are closed. r. The remaining nominal accounts are closed. s. The profit and loss summary account is closed to retained earnings. Multiple Choice.

COST ACCOUNTING AND COST MANAGEMENT 1 14

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM 1. You are given the following data on the operations of Sunny Mfg. Corp: Raw materials used Factory overhead Work in process invty., Jan 1 Work in process invty., Dec 31 Finished goods invty., Jan 1 Finished goods invty., Dec 31 Cost per unit

P 129,000 80,000 35,000 42,000 18,000 28,000 20

Number of units sold, 12,500 How much is labor cost? a. P 58,000

b. P 38,000

c. P 24,000

d. Not given

2 The following data are given by Domestic Mfg. Corp.: Increased in finished goods invty. P 12,000 Decrease in raw materials invty. 10,000 Increase in work in process invty. 5,000 Purchase returns and allo. 6,000 Freight in 7,000 Labor cost 65,000 Factory overhead 25,000 Cost of goods sold 153,000 How much must be raw materials purchases? a. P 57,000 b. P 69,000 c. P 55,000 d. not given The following information is proviided by Maunlad Mfg. 3 Corp: P Cost of goods manufactured 470,000 Labor cost 100,000 Factory overhead 50,000 Finished goods, beg 30,000 Finished goods, end 20,000 Cost of goods sold 480,000 Raw materials used 500% of work in process, end Work in process, end 75% of work in process, beg Raw materials used must be: P P a. P 300,000 b. 290,000 c. 450,000 d. not given 4 Golden Manufacturers provides you with the following data: P Cost of goods sold 360,000 Raw materials used 150,000 Labor cost 100,000 Factory overhead 100,000 Ending inventory of work in process(B) and beginninng inventory of finished goods (C)inventories are and 83 1/3% of beginning inventory of work in process (A), respectively. Finished goods Cost50% of goods manufactured is: P P a. P 340,000 b. 350,000 c. 380,000 d. not given The totals on the manfacturing work sheet prior to the inclusion of ending inventories are as 5 follows: Dr Cr 210,000. Manufacturing 00 3,600.00 35,000.0 Cost of goods sold 0 95,000.0 310,000. Income statement 0 00 Balance sheet ? 360,000.

COST ACCOUNTING AND COST MANAGEMENT 1 15

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM 00 The ending inventories are: raw materials - P 38,000; work in process - P 50,000; and finished goods inventory, P 25,000. How much must be cost of goods manufactured, cost of goods sold and net income? Manufactured Sold Net income P a. P 68,400 166,400 21,500 (226,40 b. 206,400 153,400 0) c. 118,400 128,400 86,600 d. Answer not given 6 The following information was taken from Cody Co.'s accounting records for 2013: Decrease in raw materials inventory P 15,000 Increase in finished goods inventory 35,000 Raw materials purchased 430,000 Direct labor payroll 200,000 Factory overhead 300,000 Freight out 45,000

There was no wok in process inventory at the beginning or at the end of the year. Cody's cost of goods sold for 2013 is P P a. P 895,000 b. 910,000 c. 950,000 d. P 955,000 7 How much is the unit cost of the sole product of the company based on the following information? P Factory overhead 35,000 Increase in raw materials inventory 8,000 Sales 120,000 Decrease in work in process inventory 10,000 Gross profit based on sales 30% Percentage of cost of goods sold based on cost of goods manufactured 105% Output 160,000 units a.

P .525

b.

P .50

c.

P . 605

d. None of the above

8 The footings on a manufacturing work sheet ( prior to adjustments and extension of the balances to the corresponding succeeding columns) are as follows: Dr Cr P P Manufacturing 158,000 39,000 Cost of goods sold 25,000 26,000 Income statement 63,000 245,000 The following adjustments have not yet been included in the working paper: * Unused factory supplies, P 2,600, still included in factory supplies expense * Unrecorded purchase returns, P 15,000 * Bad debts, P 12,000 * Understatement in finished goods inventory, P 8,000 How much should be the net income a. 9

P 72,400

b.

P 77,600

c.

P 93,600

d. None of the above

COST ACCOUNTING AND COST MANAGEMENT 1 16

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

How much should be the net change in finished goods inventory based on the following information? Increase in raw materials inventory P 8,000 Decrease in work in process inventory 11,000 Direct labor cost 55,000 Factory overhead 30,000 Raw materials purchases 85,000 Freight in 7,000 Purchase returns and allowances 9,500 Freight out 2,500 Sales 275,000 Gross profit percentage (based on cost) 66.67% a. Increase by P 5,500 c. Decrease by P 5,500 b. Decrease by P 21,500 d. None of the above 1 Product unit cost is P 35. Determine the amount of net purchases based on the following 0 information: Increased in finished goods inventory P 9,000 Decrease in work in process inventory 5,000 Increase in raw materials inventory 6,000 Direct labor cost 80,000 Factory overhead 64,000 Sales 420,000 Gross profit based on sales 50% a. P 150,000 b. P 76,000 c. P 146,000 d. None of the above