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    Accounting For Cost Flows: Patrick Louie E. Reyes, CTT, Micb, Rca, Cpa

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    Claudette Clemente
    Costs flow through various stages in a manufacturing company. Production costs include direct materials, direct labor, and factory overhead. Selling, general and administrative costs are non-manufacturing costs. Costs accumulate in inventory accounts for raw materials, work in process, and finished goods. Overhead is allocated to products using allocation bases to determine product costs, with different cost valuation methods for measuring overhead like actual, normal, and standard cost systems.

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    Accounting For Cost Flows: Patrick Louie E. Reyes, CTT, Micb, Rca, Cpa

    Uploaded by

    Claudette Clemente
    144 views15 pages
    Costs flow through various stages in a manufacturing company. Production costs include direct materials, direct labor, and factory overhead. Selling, general and administrative costs are non-manufacturing costs. Costs accumulate in inventory accounts for raw materials, work in process, and finished goods. Overhead is allocated to products using allocation bases to determine product costs, with different cost valuation methods for measuring overhead like actual, normal, and standard cost systems.

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    Lesson_4_-_Accounting_for_Cost_Flows

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    Costs flow through various stages in a manufacturing company. Production costs include direct materials, direct labor, and factory overhead. Selling, general and administrative costs are non-manufacturing costs. Costs accumulate in inventory accounts for raw materials, work in process, and finished goods. Overhead is allocated to products using allocation bases to determine product costs, with different cost valuation methods for measuring overhead like actual, normal, and standard cost systems.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    144 views15 pages

    Accounting For Cost Flows: Patrick Louie E. Reyes, CTT, Micb, Rca, Cpa

    Uploaded by

    Claudette Clemente
    Costs flow through various stages in a manufacturing company. Production costs include direct materials, direct labor, and factory overhead. Selling, general and administrative costs are non-manufacturing costs. Costs accumulate in inventory accounts for raw materials, work in process, and finished goods. Overhead is allocated to products using allocation bases to determine product costs, with different cost valuation methods for measuring overhead like actual, normal, and standard cost systems.

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    of 15

    ACCOUNTING

    FOR COST
    FLOWS
    PATRICK LOUIE E. REYES,
    CTT, MICB, RCA, CPA

    What flows where? 😟


    Cost Flows in Different Sectors

    ⚠️
    Costs flow in various directions and to any cost object.
    This is true in all types of business organization.
    However, for purposes of discussion, we shall only be
    dealing with cost flows in a manufacturing company.
    Cost flows in servicing and merchandising companies have already been covered in ACCT 1026. Well, at least in my class last semester.
    ICYMI
    Where do costs ultimately end up?
    •Production: All costs incurred in manufacturing a
    product fall under this category.
    •Selling, General and Administrative: All costs not
    involved in the manufacturing process fall under this
    category.
    Production Costs
    •Direct Material (DM): also called Raw Materials.
    •Direct Labor (DL)
    •Factory Overhead (OH): Costs untraceable to the product;
    composed of indirect materials, indirect labor, and other
    manufacturing costs like depreciation, taxes, insurance, etc.
    Direct Materials and Direct
    Labor are called Prime Costs;
    Direct Labor and Overhead are
    called Conversion Costs.
    Selling, General and Administrative
    •As mentioned in Slide #4, SG&A costs are non-
    manufacturing, which makes it easier for you to
    understand. Costs that do not fall under Production
    costs are included here.
    •Examples: Marketing, Advertising, Shipping,
    Management and Accounting salaries, Utility
    expenses not used in production, etc.
    •SG&A costs are generally period costs.
    Inventory Types
    •There are 3 types of inventories found in the Statement
    of Financial Position of manufacturing companies:
    • Raw Materials – does not include raw materials already
    placed in production.
    • Work in process – includes raw materials placed in
    production, direct labor, and overhead, but only those
    that are not yet finished.
    • Finished goods – finished products not yet sold.
    Cost Flow in Manufacturing
    3

    5
    8

    4
    2

    7
    Accumulation and Allocation of OH
    •Direct material and direct labor are easily traced to a
    product or service.
    •Overhead, on the other hand, must be accumulated
    throughout a period and allocated to the products
    manufactured or services rendered during that period
    •Cost allocation: refers to the assignment of an indirect
    cost to one or more cost objects using some
    reasonable allocation base or driver.
    Overhead cost valuation methods
    •Measurement of overhead costs should be rational
    and systematic so that the resulting information is
    useful for product costing and managerial purposes.
    •Three ways of OH cost measurement/valuation:
    • Actual cost system
    • Normal cost system
    • Standard cost system
    Actual cost system
    •Actual production overhead costs are accumulated
    separately in an Overhead Control account and are
    assigned to Work in process either at the end of a
    period or at completion of production.
    •Impractical, because all production overhead
    information must be available before any cost
    allocation can be made to products or services.
    Example: the cost of products manufactured or services rendered in March
    could not be calculated until the March electricity bill is received in April.
    Other cost systems
    •Normal cost system – shall be discussed in the next
    lesson (#5)
    •Standard cost system – shall be discussed in lesson
    #10, the very last lesson for ACCT 1033.
    Actual Costing Journal Entries 📝
    1 6

    2 7

    3 8

    4 9

    5
    Some useful formulae 🧪

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