I.

Background of the Company

Mr. John. Gokongwei Jr., founder of Universal Robina Corporation (URC), has
been operating for almost 50 years since its conception in 1954. Before URC became
what we know as one of the leading brands in the consumer food and beverage industries
in the Philippines, it started as a cornstarch manufacturing plant in Pasig City. As the
years progressed, Mr. John Gokongwei's success in this line of trade enabled him to look
further into diversifying his products and growing in the food production industry. He
had a vision of transforming the cornstarch manufacturing plant into a multinational
company in the Philippines which was achieved, many years later. In the year 1961,
Blend 45, or more popularly known as the "Pinoy coffee" was manufactured and instantly
became a staple product in Filipino households. The company then expanded its
operations to the poultry industry and even built laboratories for farmers in the 60's to
address their veterinary needs. It was in the year 1966 that Universal Robina Corporation
(URC) was established. URC introduced Jack 'n Jil snacks such as Chiz curls, Chippy,
and Potato Chips. Just like the previous products the company has manufactured, this
line of snacks became a success which was later followed by new snacks namely
Pretzels, Piattos, and Maxx. Venturing into the snacks industry opened up new
opportunities for URC. Today, the company is continuously growing, not just in the
Philippines but in the ASEAN market as well. Its successes are well attributed to
continuous innovation and the company's supply chain capabilities.

II. Answers to the guide questions

Process costing and job-order costing are both accounting methods that are used
to determine the cost of products. Several main similarities of both costing methods are
(1) they use predetermined overhead rates to apply overhead; and (2) they have the same
flow of costs wherein the production is recorded in different accounts for materials, labor,
and overhead; after that, the costs are then transferred to a Work in Process (WIP)
account (Managerial Accounting, n.d.). Moreover, the key differences between these two
costing methods are that with job-order costing, companies who use this method usually
work on different jobs that require different production in each period. In addition, this
method only has one Work in Process (WIP) inventory for each job. Conversely, with the
process costing method, companies produce a single product continuously or for long
periods. On top of that, the costs in this method are accumulated by process or
department (Managerial Accounting, n.d.).

In Universal Robina Corporation’s case, the company is most likely to use the
process costing method in determining its product costs. Since Universal Robina
Corporation (URC) manufactures food and beverages, products that are manufactured
remain the same; hence, it does not require different jobs. To further justify the answer,
the job-order costing method is only used when a job or product is customized for each
customer. Since Universal Robina Corporation (URC) does not, in any way, customize its
products in accordance with a consumer’s tastes and preferences, the company utilizes
the process costing method. Furthermore, the company uses varying inventory accounts
such as raw materials, work in process, and finished goods.

Inventory accounts used by Universal Robina Corporation are raw materials,

finished goods, spare partsThe inventory accounts used by URC are raw materials,
finished goods, spare parts and supplies, containers and packaging materials, and lastly
the goods-in-process inventory accounts as seen in the company's notes to financial
statements. Since URC is a large manufacturer of grocery products such as snacks and
beverages, the company has two inventory accounts unique to their line of production
namely spare parts and supplies and the containers and packaging materials. The costs of
these aforementioned inventory accounts are based on their purchase costs. The
company's finished goods and goods-in-process consist of the company's direct material
and labor and some of its manufacturing overhead costs. URC’s annual report for the
year 2020 states that the aforementioned inventory accounts are based on goods
processed and produced.

Figure 1. Cost of Sales of URC (Notes 24)

 Looking at the Consolidated Statements of Income of Universal Robina
Corporation (URC), cost of sales is shown under one account only with an amount of Php
92,081,882,538 for the year 2020. In addition, there is also a supplementary notes,
specifically notes 24, that contains the disclosures and explanations on how the company
was able to arrive at the values of cost of sales provided in the financial statement. Cost
of sales is otherwise known as cost of goods sold (COGS) that consists of all the costs
that are incurred to produce or create a specific good that are already sold to consumers.
These costs primarily include direct materials (DM), direct labor (DL), and overhead
(OH), which are further classified as manufacturing costs. As shown above, there is a
breakdown provided on how the company was able to come up with the value cost of
sales. Similar to what was taught, following the schedule of cost of goods manufactured,
DM, DL, and OH are added together to get the amount of the total manufacturing costs.
Afterwards, the goods in process or work in process (WIP), which are goods that are not
entirely completed to be sold, will be added to TMC to arrive at the cost of goods
manufactured (COGM). Moving to the schedule of cost of goods sold, the company has
no beginning finished goods (FG) inventory which is why the cost of goods available is
still equal to the cost of goods manufactured. Finally, to get the (unadjusted) cost of
goods sold, finished goods will be subtracted from the cost of goods available. In
summary, the breakdown shown in notes 24 is similar to what was taught in the
discussion. The accounts needed to compute cost of sales include TMC, WIP, COGM,
beginning FG, cost of goods available, and ending FG. Furthermore, the format or way of
computing is also the same when the schedule of cost of goods manufactured and cost of
goods sold is used.

Figure 2. Manufacturing overhead costs of URC

 With URC being considered as one of the leading food and beverage corporations
in the Philippines, the company’s operations are determined to include various costs
incurred in line with the production of its products. Focusing primarily on the
manufacturing overhead (OH) costs associated with the company’s cost objects, the
following expenses are considered accounts which are indirectly utilized by URC to the
actual manufacturing process: Utilities, Depreciation and amortization of assets,
Personnel expenses, Repairs and Maintenance, Security and other contracted services,
Insurance, Rental expense, Research and development, Handling and delivery charges,
and other costs (such as excise tax). Following the topics discussed in class, these
accounts play an important role in the overall development of the company, however, are
not traceable to the actual production (material or labor). Taking into account the
advancement of URC in the industry, it can be determined that the costs considered are
parallel to the accounts explained in the previous discussions. However, it was observed
that there are other accounts (such as excise tax) that were unfamiliar in terms of their
relevance to the affairs of URC.

The company needs to assign overhead manufacturing costs to the cost objects
because it is hard to trace them back to one cost object from a financial reporting
standpoint. According to Averkamp (n.d.), a company must allocate a part of the
manufacturing overhead to each item produced in order for a manufacturer's financial
statements to be in accordance with GAAP. It isn't easy to figure out how much
overhead costs should be assigned to each production. In order to price a product or
service effectively, it is necessary to add indirect costs. A business will be unprofitable if
the price of its items is so cheap that sales do not cover overhead costs (Hayes, 2020).

During the production process, manufacturing overhead costs are crucial to the
development and creation of goods. Furthermore, these costs help in reflecting the entire
cost of making a product. Manufacturing overhead is essential since it affects a
company's balance sheet and income statement directly. Many accounting systems
require companies to allocate costs to the things they produce. To correctly record these
costs, you must understand how to assign them reasonably and appropriately. In
addition, manufacturing overhead helps in business decisions, particularly pricing. First,
 it can help you determine products or services that are not helping you make a profit.
Second, it can serve as a motivator for various departments to enhance the efficiency of
their goods in order to save money on overhead costs. Finally, if you include indirect
costs in your product, you will maximize your profit since you have already covered the
manufacturing expenses (Team, 2019).

III. Conclusion/Recommendation
IV. References
Averkamp, H. (n.d.). Traditional methods of allocating manufacturing overhead.
AccountingCoach.Com. https://www.accountingcoach.com/manufacturing
-overhead/explanation/2
Hayes, A. (2020, December 3). Overhead rate definition. Investopedia.
https://www.investopedia.com/terms/o/overhead-rate.asp
Managerial accounting. Lumen. (n.d.). https://courses.lumenlearning.com/managacct
/chapter/chapter-1/
Team, B. Q. C. (2019, December 2). The importance of allocating overhead. QuickBooks
Canada. https://quickbooks.intuit.com/ca/resources/finance-accounting/assigning-
costs-the-importance-of-allocating-overhead/

Relevant Links:
https://www.urc.com.ph/
https://www.urc.com.ph/annualreport2018/