LECTURE 1: Managerial Accounting and Cost

Concepts
ACC 422: MANAGERIAL ACCOUNTING
BS Operations Management
Learning Objectives:
1. Understand the flow of costs in a job-order costing system and
prepare appropriate journal entries to record costs;
2. Use T-accounts to show the flow of costs in a job-order costing
system;
3. Prepare schedules of cost of goods manufactured and cost of
goods sold and an income statement;
4. Compute underapplied or overapplied overhead cost and prepare
the journal entry to close the balance in manufacturing overhead
to the appropriate accounts.
FLOW OF COSTS in a JOB-ORDER SYSTEM

▪ Raw Materials – include any materials that go into the

final product.
▪ Work-in-Process – consists of units of product that are
only partially complete and will require further work
before they are ready for sale to the customer.
▪ Finished goods – consist of completed units of product
that have not yet been sold to customers.
FLOW OF COSTS in a JOB-ORDER SYSTEM

▪ Cost of Goods Manufactured – includes the

manufacturing costs associated with units of product
that were finished during the period.
▪ Cost of Goods Sold – the various cost attached to each
job are finally recorded as an expense on the income
statement.
FLOW OF COSTS in a JOB-ORDER SYSTEM
The Purchase of Materials

o On Jan. 1, 2023, Ruger Corporation had P7,000 raw

materials on hand. On Jan 3, 2023, the company
purchased P60,000 raw materials.
Account Title Debit Credit
Raw Materials ₱ 60,000
Accounts Payable ₱ 60,000
Issue of Direct and Indirect Materials
o On Jan. 7, 2023, materials requisition forms were
prepared to authorize withdrawing P52,000 in raw
materials from the storeroom for use in production.
These raw materials included P50,000 of direct and
P2,000 of indirect materials.
Account Title Debit Credit
Work in Process ₱ 50,000
Manufacturing Overhead ₱ 2,000
Raw Materials ₱ 52,000
Labor Cost
o On Jan. 9, 2023, the employee time tickets (which
provide hourly summaries of each employee’s
activities throughout the day) included P60,000
recorded for direct labor and P15,000 for indirect
labor.
Account Title Debit Credit
Work in Process ₱ 60,000
Manufacturing Overhead ₱ 15,000
Salaries and Wages Payable ₱ 75,000
Manufacturing Overhead Cost
o On January 10, 2023, the incurred utilities, P21,000; Rent
on factory equipment, P16,000 and miscellaneous factory
overhead costs, P3,000.
Account Title Debit Credit
Manufacturing Overhead ₱ 40,000
Accounts Payable ₱ 40,000
Manufacturing Overhead Cost
o On January 12, 2023, Ruger Corporation recognized
P13,000 in accrued property taxes and the P7,000
prepaid insurance on factory building and equipment
expired.
Account Title Debit Credit
Manufacturing Overhead ₱ 20,000
Property Taxes Payable ₱ 13,000
Prepaid Insurance ₱ 7,000
Manufacturing Overhead Cost
o Assume that the company recognized P18,000 in
depreciation on factory equipment on January 13. The
following entry records the accrual of this
depreciation.
Account Title Debit Credit
Manufacturing Overhead ₱ 18,000
Accumulated Depreciation ₱ 18,000
Applying Manufacturing Overhead
o On Jan 15, assume that Ruger Corporation’s predetermined
overhead rate is P6 per machine hour. Also assume that
during January, 10,000 machine hours were worked on Job
A and 5,000 machine hours were worked on Job B (a total
of 15,000 machine hours). Thus, P90,000 in overhead cost
(P6 per machine hour x 15,000 machine hours = P90,000)
would be applied to Work in Process.
Account Title Debit Credit
Work in Process ₱ 90,000
Manufacturing Overhead ₱ 90,000
Non Manufacturing Cost
o On January 15, 2023, Ruger Corporation incurred P30,000
in selling and administrative salary costs.
Account Title Debit Credit
Salaries Expense ₱ 30,000
Salaries and Wages Payable ₱ 30,000
Non Manufacturing Cost
o Assume that depreciation on office equipment on January
15, 2023 was P7,000.

Account Title Debit Credit

Depreciation expense ₱ 7,000
Accumulated depreciation ₱ 7,000
Non Manufacturing Cost
o Assume that advertising was P42,000 and that other selling
and administrative expenses on January 15 totaled P8,000.

Account Title Debit Credit

Advertising expense ₱ 42,000
Other selling and administrative expense ₱ 8,000
Accounts payable ₱ 50,000
Formulas to Remember:
Raw Materials Used in Production Beginning Raw Materials Inventory + Purchases
of Raw Materials – Ending Raw Materials
Inventory
Total Manufacturing Costs Added to Direct Materials used in Production + Direct
Production Labor + Manufacturing Overhead Applied to
Work in Process
Cost of Goods Manufactured Beginning Work in Process Inventory + Total
Manufacturing Costs added to Production –
Ending Work in Process Inventory

Unadjusted Cost of Goods Sold Beginning Finished Goods Inventory + Cost of

Goods Manufactured – Ending Finished Goods
Inventory
Cost of Goods Manufactured
o In the case of Ruger Corporation, Job A was completed
during January, 2023 and Job B was incomplete at the end
of the month (Jan 31).
Account Title Debit Credit
Finished Goods ₱ 158,000
Work in Process ₱ 158,000
Cost of Goods Sold
o In the case of Ruger Corporation, assume 750 of the 1,000
gold medallions in Job A were shipped to customers by the
end of the month for total sales revenue of P225,000.
o Because 1,000 units were produced and the total cost of the
job from the job cost sheet was P158,000, the unit product
cost was P158.
Account Title Debit Credit
Accounts Receivable ₱ 225,000
Sales ₱ 225,000

Cost of Goods Sold ₱ 118,500

Finished Goods ₱ 118,500
(750 units x P158 per unit = P118,500)
Schedule of Cost of Goods Manufactured
Ruger Corporation
Schedule of Cost of Goods Manufactured
For the month ending January 31

Beginning Work in Process Inventory ₱ 30,000

Direct Materials
Beginning raw materials inventory ₱ 7,000
Add: Purchase of raw materials ₱ 60,000
Total raw materials available ₱ 67,000
Deduct: Ending raw materials ₱ 15,000
Raw Materials used in production ₱ 52,000
Deduct: Indirect materials used in production ₱ 2,000
Direct materials used in production ₱ 50,000
Direct labor ₱ 60,000
Manufacturing overhead applied to work in process ₱ 90,000
Total manufacturing costs added to production ₱ 200,000
Total manufacturing costs to account for ₱ 230,000
Deduct: Ending work in process inventory ₱ 72,000
Cost of goods manufactured ₱ 158,000
Schedule of Cost of Goods Sold
Ruger Corporation
Schedule of Cost of Goods Sold
For the month ending January 31

Beginning Finished Goods Inventory ₱ -

Add: Cost of goods manufactured ₱ 158,000
Cost of Goods Available for Sale ₱ 158,000
Deduct: Ending finished goods inventory ₱ 39,500
Unadjusted Cost of Goods Sold ₱ 118,500
Add: Underapplied overhead ₱ 5,000
Adjusted Cost of Goods Sold ₱ 123,500
T-ACCOUNTS
Raw Materials Work in Process
Debit Credit Debit Credit
Balance ₱ 7,000 ₱ 52,000 Jan. 7 Balance ₱ 30,000 ₱ 158,000 Jan. 31
Jan. 1 ₱ 60,000 Jan. 7 ₱ 50,000
₱ 67,000 ₱ 52,000 Jan. 9 ₱ 60,000
₱ 15,000 ₱ 90,000
₱ 230,000
₱ 72,000
Manufacturing Overhead
Debit Credit Finished Goods Inventory
Jan. 7 ₱ 2,000 ₱ 90,000 Jan. 15 Debit Credit
Jan. 9 ₱ 15,000 ₱ - ₱ 118,500
Jan. 10 ₱ 40,000 Jan. 31 ₱ 158,000
Jan. 12 ₱ 20,000 ₱ 39,500
Jan. 13 ₱ 18,000
₱ 95,000 ₱ 90,000
₱ 5,000
THANK YOU! ☺