COST ACCOUNTING

CYCLE
 MANUFACTURING COSTS

Direct materials are raw materials used in the

manufacturing process that become a significant
part of the finished goods.
Direct labor are costs of employees’ wages who
directly work with the raw materials in
converting them into finished goods.
Factory overhead are those other costs that are
incurred in the manufacturing of a product that
cannot be classified as either direct materials or
direct labor.
PRIME COST AND CONVERSION COST
 FACTORY OVERHEAD

Indirect materials these are small materials and

supplies used but cannot be economically,
physically or directly traced to the finished
products.
Indirect labor are salaries and wages of factory
personnel who do not work directly on the
direct materials.
 INVENTORIES IN MANUFACTURING
COMPANIES

Raw materials inventory are cost of unused or

unissued direct materials or supplies.
Work in process inventory are cost of direct
materials used, direct labor and factory
overhead that has begun but not yet completed
at the end of a period.
Finished goods inventory are reflects the cost
of goods that have been completed and are
ready for sale.
 COST FLOW SUMMARY

RAW MATERIALS WORK IN PROCESS COST OF GOODS SOLD

ISSUED TO DIRECT COMPLETED
PURCHASES UNITS SOLD
PRODUCTION MATERIALS DURING THE
PERIOD

DIRECT LABOR

FACTORY
PAYROLL COST OVERHEAD

FINISHED GOODS
ACTUAL PRODUCTION
COMPLETED
UNITS SOLD
DURING THE
PERIOD

FACTORY OVERHEAD

ACTUAL APPLIED
 TOTAL MANUFACTURING COST

Raw materials beginning P000

Add: Purchases 000
Total materials P000
Less: Raw materials ending 000
Direct materials used (issued) to production P00
Direct labor 000
Factory overhead 000
Total manufacturing cost P000
 COST OF GOODS MANUFACTURED

Total manufacturing cost P000

Add: Work in process beginning 000
Cost of goods put into process P000
Less: Work in process ending 000
Cost of goods manufactured P000
 COST OF GOODS SOLD

Cost of goods manufactured P000

Add: Finished goods beginning 000
Cost of goods put into process P000
Less: Finished goods ending 000
Cost of goods sold P000
 FACTORY OVERHEAD VARIANCES

(Under)Actual FOH > Applied FOH = Unfavorable

(Over) Actual FOH < Applied FOH = Favorable
Treatment:
Not material : Closed to cost of goods sold
Material : Allocated between Cost of goods
sold, Finished goods and Work in process