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Actual costing

Copyright © 2015 by McGraw-Hill Education. All rights reserved.

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Learning Objectives
Learning Objective 1 Understand
the flow of costs in a actual
costing system and prepare
appropriate journal entries to
record costs.

Learning Objective 2
Use T-accounts to show the flow
of costs in a actual costing
system.
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Key Definitions
1. Raw materials include any materials that go into
the final product.
2. Work in process consists of units of production
that are only partially complete and will require
further work before they are ready for sale to
customers.
3. Finished goods consist of completed units of
product that have not been sold to customers.
4. Cost of goods manufactured include the
manufacturing costs associated with the goods
that were finished during the period,
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Flow of Costs: A Conceptual Overview

Balance Sheet Income
Costs Inventories Statement
Expenses
Material Purchases Raw Materials

Direct Labor Work in

Process
Manufacturing
Overhead Cost of
Finished
Goods
Goods
Sold

Selling and Period Costs Selling and

Administrative Administrative
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Actual costing: The Flow of Costs

The transactions (in T-

account and journal
entry form) that capture
the flow of costs in a job-
order costing system are
illustrated on the
following slides.
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The Purchase and Issue of Raw

Materials: T-Account Form
Raw Materials Work in Process
●Material ●Direct
Purchases Materials ●Direct
●Indirect Materials
Materials

Mfg. Overhead

Indirect
●

Materials
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Cost Flows – Material Purchases

On October 1, Smith Corporation had P5,000 in
raw materials on hand. During the month, the
company purchased P45,000 in raw materials.
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Issue of Direct and Indirect Materials

On October 3, Smith had P43,000 in raw
materials requisitioned from the storeroom
for use in production. These raw materials
included P40,000 of direct and P3,000 of
indirect materials.
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The Recording of Labor Costs

Salaries and Work in Process
Wages Payable (Job Cost Sheet)
●Direct ●Direct
Labor Materials
●Indirect ●Direct

Labor Labor

Mfg. Overhead

●Indirect
Materials
●Indirect

Labor
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The Recording of Labor Costs

During the month the employee time tickets
included P35,000 of direct labor and
P12,000 for indirect labor.
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Recording Actual Manufacturing

Overhead Costs
Salaries and Work in Process
Wages Payable (Job Cost Sheet)
●Direct ●Direct
Labor Materials
●Indirect ●Direct

Labor Labor
Mfg. Overhead
●Indirect
Materials
●Indirect

Labor
●Other

Overhead
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Recording Actual Manufacturing

Overhead Costs
During the month the company incurred the
following actual overhead costs:
1. Utilities (heat, water, and power) P1,700
2. Depreciation of factory equipment P2,900
3. Property taxes payable on factory P1,000
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Applying Manufacturing Overhead

Salaries and Work in Process
Wages Payable
●Direct ●Direct
Labor Materials
●Indirect ●Direct

Labor Labor
Mfg. Overhead
Indirect
●

Materials
●Indirect

Labor
●Other

Overhead
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Accounting for Nonmanufacturing Cost

Nonmanufacturing costs are not assigned to
individual jobs, rather they are expensed in the
period incurred.

Examples:
1. Salary expense of employees
who work in a marketing, selling,
or administrative capacity.
2. Advertising expenses are expensed
in the period incurred.
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Accounting for Nonmanufacturing

Cost

During the month, Smith incurred but has

not paid sales salaries of P2,000, and
advertising expense of P750.
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Transferring Completed Units

Work in Process Finished Goods

●Direct ●Cost of
Materials ●Cost of Goods
Goods Manufactured
●Direct
Manufactured
Labor
●Overhead
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Transferring Completed Units

During the period, Smith completed goods

with a total cost of P27,000.
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Transferring Units Sold

Work in Process Finished Goods
●Direct Cost of
● ●Cost of
Materials Cost of
● Goods Goods
Goods Mfd. Sold
●Direct
Mfd.
Labor
●Overhead

Cost of Goods Sold

Cost of
●

Goods
Sold
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Transferring Units Sold

Smith sold the P27,000 in Finished Goods
Inventory to customers for P43,500 on account.
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Learning Objective 3

Prepare schedules of
cost of goods
manufactured and cost
of goods sold and an
income statement.
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Schedule of Cost of Goods

Manufactured: Key Concepts
This schedule contains three
types of costs, namely direct It calculates the
materials, direct labor, and manufacturing
manufacturing overhead. costs associated
with goods that
were finished
It calculates the cost of raw
during the
material and direct labor used
period.
in production and the amount of
manufacturing overhead
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Product Cost Flows

As items are removed from raw

materials inventory and placed into
the production process, they are
called direct materials.
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Product Cost Flows

Conversion
costs are costs
incurred to
convert the
direct material
into a finished
product.
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Product Cost Flows

All manufacturing costs added to

production during the period are
added to the beginning balance of
work in process.
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Product Cost Flows

Costs associated with the goods that

are completed during the period are
transferred to finished goods
inventory.
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Product Cost Flows

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Quick Check ✓
Beginning raw materials inventory was P32,000.
During the month, P276,000 of raw material was
purchased. A count at the end of the month
revealed that P28,000 of raw material was still
present. What is the cost of direct material
used?
a. P276,000
b. P272,000
c. P280,000
d. P 2,000
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Quick Check ✓
Beginning raw materials inventory was P32,000.
During the month, P276,000 of raw material was
purchased. A count at the end of the month
revealed that P28,000 of raw material was still
present. What is the cost of direct material
used?
a. P276,000
b. P272,000
c. P280,000
d. P 2,000
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Quick Check ✓

Direct materials used in production totaled

P280,000. Direct labor was P375,000, and
P180,000 of manufacturing overhead was added
to production for the month. What were total
manufacturing costs incurred for the month?
a. P555,000
b. P835,000
c. P655,000
d. Cannot be determined.
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Quick Check ✓

Direct materials used in production totaled

P280,000. Direct labor was P375,000, and
P180,000 of manufacturing overhead was added
to production for the month. What were total
manufacturing costs incurred for the month?
a. P555,000
b. P835,000
c. P655,000
d. Cannot be determined.
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Quick Check ✓
Beginning work in process was P125,000.
Manufacturing costs added to production for the
month were P835,000. There were P200,000 of
partially finished goods remaining in work in
process inventory at the end of the month. What
was the cost of goods manufactured during the
month?
a. P1,160,000
b. P 910,000
c. P 760,000
d. Cannot be determined.
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Quick Check ✓
Beginning work in process was P125,000.
Manufacturing costs added to production for the
month were P835,000. There were P200,000 of
partially finished goods remaining in work in
process inventory at the end of the month. What
was the cost of goods manufactured during the
month?
a. P1,160,000
b. P 910,000
c. P 760,000
d. Cannot be determined.
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Quick Check ✓
Beginning finished goods inventory was P130,000.
The cost of goods manufactured for the month was
P760,000. The ending finished goods inventory
was P150,000. What was the cost of goods sold
for the month?
a. P 20,000
b. P740,000
c. P780,000
d. P760,000
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Quick Check ✓
Beginning finished goods inventory was P130,000.
The cost of goods manufactured for the month was
P760,000. The ending finished goods inventory
was P150,000. What was the cost of goods sold
for the month?
a. P 20,000
b. P740,000
c. P780,000
d. P760,000
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End