COST

MANAGEMENT
01. INTRODUCTION
Cost Accounting

02. JOINT PROCESS

Process and Outputs

03. ALLOCATION OF JOINT COSTS

Four (4) Methods

04. ACCOUNTING FOR BY-PRODUCTS

Two (2) Methods
TABLE OF
CONTENT
01.

INTRODUCTION
MANAGEMENT COST FINANCIAL
ACCOUNTING ACCOUNTING ACCOUNTING
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

classifying different journalizing and assigning costs to
costs for different posting in cost cost objects
users and uses pools
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

I. As to Function:
a. Manufacturing
b. Selling
c. General and
Administrative
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

II. As to Behavior:
a. Variable
b. Fixed
c. Mixed
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

III. As to Elements:
a. Materials
b. Labor
c. Factory Overhead
d. Selling and
Administrative
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

IV. As to Aggregate:
a. Total
b. Unit
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

V. As to Cost Objects:
a. Direct
b. Indirect
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

VI. As to Purpose:
a. Product
b. Period
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

Cost Pools - an account
in which a variety of
similar costs are
accumulated prior to
allocation to cost objects
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

Cost Objects - the
intermediate and final
disposition of cost pools
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

DM
DL
FOH
 COST ACCOUNTING

CLASSIFICATION ACCUMULATION ASSIGNMENT

02.

JOINT PROCESS
JOINT PROCESS
SPLIT-OFF POINT
FURTHER PROCESSING
FURTHER PROCESSING

Separable Cost
JOINT PRODUCT BY-PRODUCT SCRAP
• main product • incidental output • incidental output
• has significant • salable • salable
revenue-generating • higher sales value • lower sales value
ability compared to scrap compared to the
by-products

WASTE • final residual output of the process

• has no sales value
03.

ALLOCATION
OF JOINT
COSTS
1. PHYSICAL MEASURE
Joint Cost X (No. of units - Product 1 / Total no. of units)

2. SALES VALUE @ SPLIT-OFF POINT

Sales Value @ Split-Off Point X Physical Measure
Joint Cost X (Sales @ S-O P. - P1 / Total Sales @ S-O P.)

3. NET REALIZABLE VALUE

(Sales Value @ S-O P. - Disposal Cost @ S-O P.) X Physical Measure
Joint Cost X (NRV - P1 / Total NRV)

4. APPROXIMATED NRV
(Final Sales Price - DC after S-O - Separable Cost) X Physical Measure
Joint Cost X (Approximated NRV - P1 / Total Approximated NRV)
04.

ACCOUNTING
FOR BY-
PRODUCTS
1.Cost Reduction Method
NRV is expected to be
significant
JOINT COST - NRV of by-product

2. Realizable Value Method

NRV is expected to be
insignificant
NRV of the by-product can be
accounted as
a. Other Income
b. Additional Sales Revenue of the
BY-
main product PRODUCT
PRODUCT
COSTING
SYSTEM
01. INTRODUCTION
Job-order vs Process Costing

02. JOB-ORDER COSTING

Allocation of Costs

03. PROCESS COSTING

Allocation of Costs

TABLE OF
CONTENT
01.

INTRODUCTION
02.

JOB ORDER
COSTING
JOB ORDER COSTING
1. Job order costing applied to cost as follows:

a. Direct materials and direct labor costs are traced to a particular job.
b. Manufacturing overhead, including indirect materials and indirect
labor, are allocated to all jobs rather than directly traced to each job.
JOB ORDER COSTING
1. Job order costing applied to cost as follows:
a. Direct materials and direct labor costs are traced to a particular job.
b. Manufacturing overhead, including indirect materials and indirect
labor, are allocated to all jobs rather than directly traced to each job.
2. The overhead rate is predetermined yearly rate using as base, labor
hours, machine hours, or labor cost.
JOB ORDER COSTING
1. Job order costing applied to cost as follows:
a. Direct materials and direct labor costs are traced to a particular job.
b. Manufacturing overhead, including indirect materials and indirect
labor, are allocated to all jobs rather than directly traced to each job.
2. The overhead rate is predetermined yearly rate using as base, labor
hours, machine hours, or labor cost.
3. Practically, the difference between overhead applied and actual
overhead is closed to cost of goods sold at the end of the period.

APPLIED: ACTUAL:

OH APPLIED = POHR x Actual Activity OH CONTROL = ACTUAL OVERHEAD

OVERAPPLIED (CR) : Applied (Cr) > Actual (Dr)

UNDERAPPLIED (DR) : Applied (Cr) < Actual (Dr)
SAMPLE PROBLEM:
VVV Company uses a job-order costing system and the following information is
available from its records. The company has three jobs in process: #1, #2, and
#3.

Raw materials used P260,000

Direct labor per hour P 19.00
Overhead applied based on DL cost 125%

Of the raw materials used, total of 85% were traceable to the specific jobs (Job
#1: 25%; Job #2: 30%; Job #3: 30%) and the balance of the requisitions was
considered indirect. Direct labor hours per job are 2,800; 3,300; and 4,000,
respectively. Indirect labor is P90,000. Other actual overhead costs totaled
P100,000.

1. Assuming all of the jobs were completed and the company used actual
costing, what is the total cost of goods manufactured?
2.Assuming only Job No. 2 and 3 were completed and sold, what is the cost of
goods sold at year end?
3.What is the under (Dr) or over (Cr) applied overhead?
SAMPLE PROBLEM:
1. Assuming all of the jobs were completed and the company used actual
costing, what is the total cost of goods manufactured?

Direct Materials (P260,000 x 85%) P221,000

Direct Labor [(2,800 + 3,300 + 4,000) x P19] 191, 900
Overhead [90,000 + 100,000 + (P260,000 x 15%)] 229,000
TOTAL COST OF GOODS MANAFACTURED P641,900
SAMPLE PROBLEM:
2. Assuming only Job No. 2 and 3 were completed and sold, what is the cost of
goods sold at year end?

Job 2 Job 3 TOTAL

Direct Materials
(P260,000 x 30%) P78,000 P78,000 P156,000
Direct Labor
(3,300 x P19) 62,700
(4,000 x P19) 76,000 138,700
Overhead
(3,300 x P19 x 125%) 78,375
(4,000 x P19 x 125%) 95,000 173,375
TOTAL COST OF GOODS SOLD P219,075 P249,000 P468,075
SAMPLE PROBLEM:
3. What is the under (Dr) or over (Cr) applied overhead?

Overhead APPLIED [(2,800 + 3,300 + 4,000) x P19] x 125% P 239, 875

Overhead CONTROL [P90,000 + P100,000 + (P260,000 x 15%)] 229, 000
OVERAPPLIED 10, 875
03.

PROCESS
COSTING
TWO METHODS OF COSTING UNDER PROCESS
COSTING:
1. FIFO Method
2.Weighted Average Method - commingles the cost of two periods
STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).

Beginning WIP xx
Started xx
Units to account for xx

Beginning WIP xx
Started and Completed xx
Ending WIP xx
Units accounted for xx
STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).
2. Calculate the Equivalent Units of Production (EUP).

EQUIVALENT UNITS OF PRODUCTION (EUP):

Approximations of the number of whole units of output that could have been
produced during the period from the actual resources expended during the
period.
STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).
2. Calculate the Equivalent Units of Production (EUP).

Weighted Average Method:

Beginning WIP (whole) xx

Started and Completed (whole) xx
Ending WIP (equivalent) xx
EUP xx

FIFO Method:

Beginning WIP (equivalent) xx

Started and Completed (whole) xx
Ending WIP (equivalent) xx
EUP xx
STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).
2. Calculate the Equivalent Units of Production (EUP).
3. Calculate the unit costs.

Weighted Average Method:

Cost of Beginning WIP xx

Current Period cost xx
Total Cost of Production xx
Divided by: EUP (Step 2) xx
UNIT COST xx

FIFO Method:

Current Period cost xx

Divided by: EUP (Step 2) xx
UNIT COST xx
 STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).
2. Calculate the Equivalent Units of Production (EUP).
3. Calculate the unit costs.
4. Allocate the costs for materials and conversion costs separately between
units in Ending Inventory and units transferred out according to the
equivalent units in each

Weighted Average Method:

Cost of Beginning WIP

Current Period cost (equivalent unit x unit cost) xx
Cost of units started and completed (equivalent unit x unit cost) xx
Total Cost for Completed Units xx
Cost of Ending Inventory (equivalent unit x unit cost) xx
TOTAL COST xx
 STEPS IN PROCESS COSTING:
1. Determine the quantity schedule (the physical flow of the goods).
2. Calculate the Equivalent Units of Production (EUP).
3. Calculate the unit costs.
4. Allocate the costs for materials and conversion costs separately between
units in Ending Inventory and units transferred out according to the
equivalent units in each

FIFO Method:

Cost of Beginning WIP

Previous Period Cost xx
Current Period cost (equivalent unit x unit cost) xx xx
Cost of units started and completed (equivalent unit x unit cost) xx
Total Cost for Completed Units xx
Cost of Ending Inventory (equivalent unit x unit cost) xx
TOTAL COST xx
SAMPLE PROBLEM:
1. Determine the quantity schedule (the physical flow of the goods).

Beginning WIP 5,000

Started 20,000
Units to account for 25,000

Beginning WIP 5,000

Started and Completed 14,000
Ending WIP 6,000
Units accounted for 25,000
 SAMPLE PROBLEM:
2. Calculate the Equivalent Units of Production (EUP).

Direct Materials Conversion

Beginning WIP 5,000 (70%) 3,500 (30%) 1,500
Started and Completed 14,000 (100%) 14,000 (100%) 14,000
Ending WIP 6,000 (60%) 3,600 (80%) 4,800
EUP 25,000 21, 100 20,300
 SAMPLE PROBLEM:
3. Calculate the unit costs..

Direct Materials Conversion

EUP 21,100 20,300

Current Period Cost P 46,420 P 7 1,050

Divided by: EUP 2 1, 1 00 20,300
UNIT COST P 2.2 P 3.5
 SAMPLE PROBLEM:
4. Allocate the costs for materials and conversion costs separately between
units in Ending Inventory and units transferred out according to the equivalent
units in each.

DM Conversion Total
UNIT COST P 2.2 P 3.5 P 5.7

Cost of Beginning WIP

Previous Period Cost P 12,500 P 11,600 P 24,1 00
Current Period cost (3,500) 7,700 (1,500) 5,250 1 2,950
Cost of units S & C (14,000) 30,800 49,000 79,800
Total Cost for Completed Units 51,000 65,850 1 1 6,850
Cost of E I (3,600) 7,920 (4,800) 1 6,800 24,720
TOTAL COST P58,920 P82,650 P141,570
SAMPLE PROBLEM:
1. Determine the quantity schedule (the physical flow of the goods).

Beginning WIP 10,000

Transferred-In 19,000
Units to account for 29,000

Beginning WIP 10,000

Started and Completed 11,000
Ending WIP 8,000
Units accounted for 29,000
 SAMPLE PROBLEM:
2. Calculate the Equivalent Units of Production (EUP).

Transferred-In Direct Materials Conversion

Beginning WIP 10,000 10,000 (100%) 10,000 (100%) 10,000
S&C 11,000 1 1,000 (100%) 1 1,000 (100%) 1 1,000
Ending WIP 8,000 8,000 (0%) 0 (75%) 6,000
EUP 29,000 29,000 21,000 27,000
 SAMPLE PROBLEM:
3. Calculate the unit costs..

Transferred-In Direct Materials Conversion

EUP 29,000 21,000 27,000

Cost of Beginning Inventory P 4,950 P 10,500 P 1,000

Current Period Cost 1 1 6,850 63,000 80,000
Total Cost of Production P1 2 1,800 P 73,500 P 81,000
Divided by: EUP 29,000 21,000 27,000
UNIT COST P 4.2 P 3.5 P 3.0

TOTAL COST PER UNIT (P4.2 + P3.5 + P3.0) P 10.7

 SAMPLE PROBLEM:
4. Allocate the costs for materials and conversion costs separately between
units in Ending Inventory and units transferred out according to the equivalent
units in each.

Transferred-In DM Conversion Total

UNIT COST P 4.2 P 3.5 P 3.0 P 10.7

Cost of Beginning WIP

Current Period cost (10,000) P 42,000 P 35,000 P 30,000 P107,000
Cost of units S & C (11,000) 46,200 38,500 33,000 1 1 7,700
Total Cost for Completed Units 88,200 73,500 63,000 224,700
Cost of E I (8,000) 33,600 (0) 0 (6,000) 1 8,000 51, 600
TOTAL COST P121,800 P73,500 P 81,000 P276,300