COST ACCOUNTING CYCLE
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ILLUSTRATION OF COST ACCOUNTING CYCLE (Manufacturing Firm)
Instruction: Please study the illustration below the provide the requirements. PLEASE DO NOT HESITATE
TO ASK ME IF YOU HAVE ANY QUESTIONS. YOU CAN PM ME ANYTIME.
ABC Company is a small, newly organized company that manufactures dining tables and chairs. Below is
the beginning Statement of financial position of the company.
ABC COMPANY
STATEMENT OF FINANCIAL POSITION
January 1, 2020
ASSETS LIABILITIES AND STOCKHOLDER’S EQUITY
Cash 90,000 Liabilities 0
Building 800,000 Capital Stock 1,090,000
Machinery and Equipment 200,000
TOTAL ASSET 1,090,000 TOTAL LIABILITIES AND SHE 1,090,000
The company makes inly one style of table and no chairs for the month of January. The following
transactions were completed for January and recorded as follows:
1. Materials are purchased on account at a cost of P60,000. (Lumber, paint, screws, lubricants, and
solvent)
Materials 60,000
Accounts Payable 60,000
2. During the month, direct materials (Lumber and Paint) Costing P50,000 and Indirect materials
(screws, lubricants for machines, and solvent for cleaning) costing P2,100 are issued to the
factory.
Work in Process 50,000
Factory Overhead Control 2,100
Materials 52,100
3. Total Payroll for the month amounted to P40,000, consisting P26,000 earned by laborers
working on the product; P6,000 for factory supervision; P8,000 for sales and admin employees.
Work in process 26,000
Factory Overhead control 6,000
Selling and Administrative salaries Expense 8,000
4. Depreciation expense for building is 6%
Cash on Hand/Cash in bank per year. The office occupancies
40,000 one-tenth of the total
building, and the factory operation is in the other nine-tenth.
Factory Overhead Control 43,200
Selling and Administrative Depreciation expense 4,800
Accumulated Depreciation 48,000
5. Depreciation Expense for Machinery and Equipment is 20% per year. All Machinery and
equipment are used in the Factory.
Factory Overhead Control 40,000
Accumulated Depreciation 40,000
6. The cost of Light, heat and power for the month P5,000.
Factory Overhead Control 4,500
Selling and Administrative Expense 500
Accounts Payable 5,000
7. Miscellaneous Expense for telephone, office supplies, travel expense etc. P2,000
Selling and Administrative Expense 2,000
Accounts Payable 2,000
8. Factory Overhead is charged to production at 85% of direct Labor cost
Work in process 22,100
Factory Overhead Applied 22,100
9. Assuming all gods started in process have been finished.
Finished goods 98,100
Work in process 98,100
Assuming 1,000 tables were produced during the month, unit cost will be computed as follows:
Direct Materials 50,000
Direct Labor 26,000
Factory Overhead 22,100
98,100/1,000 units = 98.10 per unit
If the company determines the gross profit percentage is 40% to be able to cover up the selling and
admin expenses and earn a profit, the selling price per unit should be as follows:
Manufacturing cost per unit 98.10
Gross profit (40%) 39.24
Selling price 137.34
10. Cost of Materials, utilities and other expenses paid amounted to 40,000.
Accounts Payable 48,000
Cash on Hand/Cash in bank 48,000
11. 800 Tables were sold at a net price of P109,872
Accounts
AccountsReceivable
Receivable 109,872
Sales 109,872
Cost of goods sold 78,480
Finished goods 78,480
12. Collected 65,000 from Accounts receivable
Cash 65,000
Accounts Receivables 65,000
REQUIRED: From the Illustration above please prepare:
1. ABC Company Trial Balance as of January 31, 2020
2. ABC Company Balance Sheet as of January 31, 2020
3. ABC Company Income Statement for the month ended January 31, 2020
4. Cost of goods sold statement
