Cost & MGT Accounting - Lecture Note - Ch. 3 & 4

Addis Ababa University, College of Business & Economics, Department of Accounting & Finance
COST AND MANAGEMENT ACCOUNTING I

Chapter III & IV
Product Costing Systems
PART 1 JOB ORDER COSTING SYSTEM
Two costing systems are commonly used in manufacturing and in many service companies; these
two systems are known as job-order costing and process costing.
 A job-order costing is used in situations where many different products are produced
each period.
 A process costing is used in situations where the company produces many units of a
single product for long periods at a time. In this system, the cost object is masses of
identical or similar units of a product or service.
 Features of Job Order Costing

The job order cost system accumulates cost applicable to each specific job order or lot of similar
goods manufactured on a specific order for stock or for customer. When production on a job
begins, the job is assigned a number, and a form called a job cost sheet is set up. As direct
materials are used, their costs are entered on the job cost sheet. Similarly, direct labor costs
incurred on job are recorded periodically. When the job is completed (or periodically as the job
is worked on), manufacturing overhead costs applicable to the job are estimated and entered on
the job cost sheet. The job cost sheet, when complete, shows the total cost of the completed job.
The cost per unit may then be obtained by dividing the total cost of the job by the number of
units completed.
The job order cost system is often used by manufacturers, such as a furniture manufacturer, who
produces a variety of products, because such producers need to keep track of each specific order
to ensure correct allocation of costs. Also, the actual costs on the job cost sheets may be
compared with the estimated cost on which the sales prices were based. Any discrepancies or
significant variations between estimated costs and actual costs to manufacturer are analyzed, and
necessary corrective actions are taken to ensure that adequate profit margins are maintained.
Lecture Note- Cost & Mgt. Acct I; Ch. 3&4; Instructor: Kassaye Tuji, 2022/3GC (2015EC) Page 1 of 28
 Cost Accounting Systems
To properly account product cost, a company must use an Accounting system that accumulates
and assigns costs to the manufactured units. Proper accounting for products is particularly
essential in the preparation of financial statements as costs that are assigned to goods sold appear
on the Income statement and costs assigned to the unsold units appear on the Balance sheet.
Manufacturers can use two basic Accounting systems: General Accounting System, and Cost
Accounting System. A General Accounting System is a logical extension of accounting for
merchandising firms, and uses the periodic inventory system. However, since managers require
frequent accounting reports on manufacturing costs for decision making purposes, the use of the
General Accounting System is very limited.
 The cost accounting system uses the perpetual inventory system, and achieves greater
accuracy in the determination of product costs than is possible with the general
accounting system.
 There are two extremes of cost accounting systems for manufacturing operations – job
order cost system, and process cost system.
 A job order cost system provides a separate record of the cost of each particular quantity
of product that passes through the factory. The system accumulates costs for a particular
batch of production, commonly referred as a Job. A job has a definite starting and
completion time as would, for example, the production of 10 pieces of windows, or 50
coffee tables.
 In job order costing system, costs are accumulated by job. For each job, the firm
maintains a separate job cost sheet, which is a record on which manufacturing costs of the
job are accumulated.
 Cost Accumulation and Flow in Job Order Costing

The physical flow of production is the sequence of operating activity that begins with the
decision to order direct materials and ends with finished product being sold to customers. The
intervening steps may vary from firm to firm, but they share a common trend. The following may
show the steps of the physical flow of production.
1. Purchase requisition – For commonly used direct materials, organizations have a
reorder level, which is the minimum amount of stock that can be on hand at any given
time before another purchase is made to meet the lead time demand. The reason for
maintaining such a minimum stock level is to hedge against the risk of stock shortages
due to reasons like unexpected heavy usage, delays and other reason that results in stock
out situations. When the stock level reaches such a point, the storeroom clerk fills a
purchase requisition, a form requesting the purchase of the needed material. After the
form is duly filled, it will be sent to the purchasing department.
A sample of Purchase Requisition form looks like the one as follows:

ABC Furniture Factory
Date: January 5,2004 Requisition no. 121
Purchase requisition form
Prepared by:
Quantity Description Date needed
1,000.00 board ft Lumber (eucalyptus) January 15, 2004
5 gallons Glue January 15, 2004
50 boxes Nails January 15, 2004

 No journal entry is required when a purchase requisition is prepared.
2. Purchase order – the purchasing department following purchase requisitions from the
storeroom clerk will prepare a purchase order. A purchase order is a document that
authorizes the supplier to ship the specified merchandise ordered. A typical purchase
order may contain the following:
A sample Purchase Order looks the following:

Purchase order form
Date: January, 6, 2004 Purchase No. 496
Vendor
Gentle lumber processing
Arat Kilo, Close to AAU, Science Faculty
F.O.B point Ship Via Terms Delivery Requisition
date no.
Factory site Tana Transport 2/10, n/30 Jan. 15, 121
PLC 2003
Item no. Quantity Description Unit price Total
1. 1,000 board ft. Lumber 20 20,000.00
(eucalyptus)
 No journal entry is required when a purchase order is filled.
3. Receiving report – when the ordered materials are received, the receiving department
prepares a receiving report, which lists the description, and quantities of goods received.
A copy of the document will be sent to the storeroom clerk along with the materials. The
receiving report, together with the invoice of the supplier forms the basis for recording
the purchase of the materials. The purchase of the lumber in the above example, for
instance, would be recorded as follows:
 When the materials are received
Dr. Cr.
January 15, 2003 Direct material 20,000.00
Account payable 20,000.00
A sample Receiving Report is shown below.
Receiving report form
Received from: Receiving report No. R 1345
Gentle lumber processing Arat Kilo
Close to AAU, Science faculty
Freight: Purchase order No. 496
Pd Collect
X
Date received: February 15, 2003 Received by: Abera G.
Quantity Description Weight

Gross Net
1,000 board ft. Lumber (eucalyptus)
4. Production Order – a manufacturer can produce in response to a customer order or just

for stock. Whatsoever, when the decision to produce is made, productions order will be
prepared and approved by the manager in charge.
A sample Production Order is presented here below.

Production Order
Date:January19,2003 Job No. 365
Manufactured for: Stock
Date needed: March 20, 2003
Quantity Model number Description
150 F. 4152 Coffee Table
Authorized by: Dereje Demissie

No journal entries are required on the company’s books when the production order is issued.
5. Material requisition – to commence production, evidently the production department

needs direct materials. The materials required for production are requested through a
document called material requisition form. The material requisition form should contain
specific description of the direct and indirect materials required for production.
A sample Material Requisition form is shown below:

Material requisition No. 906 Date: January 28, 2003
Job No. to be charged: 365
Quantity Description Unit cost Total cost Classification
500 board ft. Lumber 20 10,000.00 Direct
1 box Nail 22 22 Indirect
1 Gallon Glue 30 30 Indirect
10,052.00
Direct materials -------10,000.00
Authorized signature Indirect materials ----------52.00
At the time the materials are issued from the storeroom, the following entry is made:
Jan. 28, 2003 Work in process 10,000.00
Manufacturing overhead 52.00
Raw materials 10,052.00
o Direct materials that are sent for manufacturing process are no more direct materials
since they are soon to be processed to become finished goods Thus, the cost is charged
to work in process account.
6. Job Cost Sheet

 Right after the materials are received from store, a job cost sheet will be prepared. The
job cost sheet is used to accumulate the manufacturing costs incurred in producing that
particular job.
 The key source document in a job costing system is a job cost record, also called a job
cost sheet, a document that records and accumulates all the costs assigned to a specific
job. The job cost record is started as soon as work begins in a particular job.
 After being notified that the production order had been issued, the Accounting
Department prepares a job cost sheet. A job cost sheet is a form prepared for each
separate job that records the materials, labor, and overhead costs charged to the job.
 In addition to serving as a means for chagrining costs to jobs, the job cost sheet also
serves as a key part of a firm’s accounting records. The job cost sheet form a subsidiary
ledger to the Work in Process account. A separate cost sheet is maintained for each job.
Thus, the value of work in process at any time can be found by adding the different job
cost sheet.
The following is a sample Job Cost Sheet:

Job Cost sheet
Job No. 365 Date started: Jan. 29, 2003
Date completed: March 20, 2003
Item 4152 – Coffee Tables
For stock
Direct material Direct labor Manufacturing overhead
Date Req. Amount Date Hours Amount Date DLH Rate Amount
No.
Jan. 28 906 10,000
2003
Cost summary
Cost item Amount
Total direct material
Total direct labor
Total manufacturing overhead applied
Shipping summary
Date Number of units shipped Cost balance
7. Job Time Ticket – the second cost category of manufacturing firms is the direct labor
employed. A job time ticket is used to record how much time is spent on a particular job.
When a particular job is started, the employee fills the time the job is started on the job
time ticket, and he punch out the card and fills the time he stopped when he left the job.
 Suppose analysis of the job time ticket showed direct labor of 9,600.00 and indirect
labor of 4,800.00, the journal entry to record the cost of direct and indirect labor looks
like the following:
Jan. 28, 2003 Work in process 9,600.00
Manufacturing overhead 4,800.00
Wages payable 14,400.00
A sample of Job Time Ticket is shown below

Job time ticket
Employee’s Name: Date: March 5
Department: Sanding Time started: 8:30 am
Time completed: 11:30
Operation: Sanding Job no. 365
Hours Rate of pay Direct labor Comment
3 hrs. 8 24
 Idle time may exist because of machine breakdown, or when there is material shortage or
time lost while the employee shifts from one job to another. The cost of idle time should
be absorbed by all units produced in the year instead of cost of a specified product. Thus,
cost of idle time is debited to overhead.
MANUFACTURING OVERHEAD
Manufacturing overhead – costs other than direct material and direct labor that are necessary to
transform the raw materials into finished goods are called manufacturing overhead.
 Such Manufacturing costs are common costs – costs shared by more than one cost object-
that should be apportioned among the cost objects sharing the cost.
 However, the total overhead costs cannot be known exactly until the end of the year.
Thus, organizations should wait up to the end of the year if they are to charge the actual
amount.
 Yet, many jobs are completed but the job cost sheet remains open waiting for the actual
overhead cost. Thus, interim financial statements are impossible which in turn affect
managerial decision purposes.
 A predetermined overhead rate is determined to allocate such costs to individual jobs,
which is found by dividing estimated overhead cost to the estimated amount of allocation
base.
 The allocation base is assumed to be a cost driver of manufacturing overhead costs.
 In other words, there has to be a cause and effect relationship between the allocation
base and manufacturing overhead costs. For instance, a labor intensive firm should use a
labor oriented base, and a machine base should use a machine oriented base since most
these overhead costs may respond to a change to the allocation base.
o MOH Costs include factory rent, electricity, and depreciation on machinery. Most of
these costs are common to more than one batch of job and hence cannot be directly traced
to a specific job.
o Thus, such costs must be assigned to the different cost objects in some way. However,
assigning MO to units of product is a difficult task; because of three reasons:
1. MO is an indirect cost, it is difficult to trace to a particular job.
2. MO consists of many different items ranging from the grease used in machines to
the annual salary of production manager.
3. MO costs tend to remain relatively constant due to the presence of fixed costs.
 Therefore, the only way to assign overhead costs to products is to use an allocation
process. This allocation overhead cost is accomplished by selecting an allocation base
that is common to all of the company’s products and services.
 An allocation base is a measure such as direct labor hours (DLH) or machine hours
(MH) that is used to assign overhead costs to products and services. The allocation base
is used to compute the predetermined overhead rate:
Predetermined overhead rate = Estimated total manufacturing overhead cost
Estimated total units in the allocation base
 The predetermined overhead rate is based on estimated rather than an actual figure. This
is because the predetermined overhead rate is computed before the period begins and is
used to apply overhead cost to jobs throughout the period. The process of assigning
overhead cost to jobs is called overhead application.
Overhead applied to a particular job = Predetermined X Amount of the Allocation
Overhead Rate Base incurred by the job
o A predetermined overhead rate is calculated using the projected overhead cost and some
activity base that has a cause and effect relationship with manufacturing overhead costs.
For instance, assume that the projected overhead cost for the upcoming year is Birr
80,000.00, and the direct labor hour is estimated to be 4,000 hrs, the predetermined
overhead rate can thus be calculated as follows:
Predetermined overhead cost = Estimated Overhead Cost
Estimated Activity Base (Direct Labor Hr.)
POR = 80,000 = 20 per direct labor hour.

4,000
If we assume that the direct labor hours spent on the job are 90, the manufacturing over head
applied will therefore be 90 X 20 =1800. The entry to record the manufacturing overhead applied
is as follows:
March 18, 2003 Work in process 1,800.00

Manufacturing overhead applied 1,800.00
 The manufacturing overhead applied is a contra account to the actual manufacturing

cost.
 Although actual costs are not assigned, they should be recorded as incurred. Suppose that
factory rent, utilities, and other manufacturing costs totaled Birr 22,000.00. The following
entry is required to record the actual manufacturing cost.
March 20, 2003 Manufacturing Over Head 22,000.00
Various Accounts 22,000.00
8. Finished Goods Inventory Ledger Card – when work in process is completed and
transferred to the finished good inventory warehouse, the following journal entry is
required:
March 20, 2003 Finished Goods 21,400.00
Work In Process 21,400.00
9. Cost of Goods Sold – two records are maintained when sale is made under the perpetual
inventory system: one for sales and the other for cost of goods sold. Assume that half of
the coffee tables produced (75) are sold for birr 180 each on with a 40% down payment.
 The entry to record the sales looks the following:

April 10, Cash 5,400.00
2003 Account Receivable 8,100.00
Sales (75x180) 13,500.00
 The total units produced are 150 as shown in the production order. Half of that amount is
75, and 75 units at 180 is equal to 13,500.00. When we come to the cost of goods sold,
the total cost of goods produced is Birr 21,400.00. Thus, the unit cost of each coffee table
is Birr 142.67 (21,400/150). The cost of the 75 units that are sold is Birr 10,700.00
(75x142.67).
 The following entry is necessary to record the cost of goods sold.

April 10, Cost of Goods Sold 10,700.00
2003 Finished Goods 10,700.00
 In general, a firm’s cost accounting system parallels its flow of operation. The nine steps
followed in the previous illustration are summarized below in a concise manner.
1. Procurement – raw materials and supplies needed for manufacturing are ordered,
received, and stored.
2. Production – raw materials are transferred from storeroom to factory. Labor,
tools, machines, power, and other costs are applied to transform the raw material
into finished product.
3. Warehousing – finished goods are moved from the factory to the ware house to
be held until they are sold.
4. Selling – customers are found. Merchandises are shipped from the warehouse, and
customer accounts are charged.
 The following diagram shows the above points:
Procurement Production Warehousing Selling
Raw Materials Work In Process Finished Good COGS
In Out In Out In Out In
Direct labor
Out
MOH
Out
 As shown in the table cost flow parallels with the physical flow of production.
Actual Costing versus Normal Costing

The use of an applied overhead instead of an actual overhead has the advantage of timeliness,
and hence relevance for timely decision making. However, the amount may not be as accurate as
the actual overhead cost. But the actual cost is known only at the end of the period, and thus
product costing is impossible before the year ends. Actual costing thus makes product costing
untimely, and this in turn affect decisions like product pricing, and controlling operations.
Therefore, most firms use an applied overhead cost than actual cost for indirect Mfg. costs.
 Normal costing is a costing system where the actual direct material and direct labor are
added to the work in process inventory at the actual amount, and overhead costs are applied
to the work in process inventory using a predetermined overhead rate. The term normal
comes from the idea that the rate is normalized over a long period of time.
 Actual costing is a costing system where direct material and direct labor costs are traced to
the job at their actual amounts, and overhead costs are allocated using actual overhead.
Since manufacturing overhead costs cannot be directly traced to each job in an economically
feasible way, still the amount charged to each job is simply an allocated amount. The
difference is simply the use of an actual overhead than an estimated overhead.
 The table below shows summary of Actual and Normal Costing

Cost Assignment Actual costing Normal costing
Direct material Tracing Actual Actual
Direct labor Tracing Actual Actual
MOH Allocation Actual OH rate X Estimated OH rate X actual
actual cost driver used amount of cost driver
Disposition of Over and Under Applied Overhead
Under normal costing, the actual amount of manufacturing overhead costs at the end of the
period rarely matches with the applied manufacturing overhead costs during that same period.
Often the applied amount may either be less or more than the actual amount.
 If the amount of manufacturing overhead is less than the actual amount, the difference is
said under-applied overhead or under-absorbed overhead. When the reverse is true, the
difference is said over-applied overhead or over-absorbed overhead.
 Under and over applied overhead at the end of one fiscal year should not be carried to
the upcoming periods; rather they should be disposed off in the year the difference
occurs. The disposition of under and over applied overhead costs can take one of the
following two ways.
 Closed out to Cost of Goods Sold;

 Allocated between Work in Process, Finished Goods, and Cost of Goods Sold in
proportion to the overhead applied during the current period in the ending
balances of these accounts.
1) Closed out to Cost of Goods Sold

Cost of Goods Sold xxx
Manufacturing Overhead xxx
(If the Actual Cost  Overhead Applied = Under-Applied)
Manufacturing Overhead xxx

(If the Actual Cost  Overhead Applied = Over-Applied
 Suppose that the manufacturing overhead – control has a debit balance of Birr 607,500,
and the manufacturing costs applied is Birr 540,000. The under applied manufacturing
overhead cost can thus be disposed to cost of goods sold in the following manner:
Debit Credit
Cost of Goods Sold 67,500.00
Manufacturing Overhead Applied 540,000.00
Manufacturing Overhead Control 607,500.00
OR
Debit Credit
MOH Applied 607,500.00
MOH Control 607,500.00
 The applied (allocated) manufacturing overhead is a contra account to manufacturing

overhead control, and thus, the normal balance for the applied manufacturing overhead is
credit.
 At the end of the period both must be closed. The applied manufacturing overhead
account is debited and the manufacturing overhead control is credited, and any difference
is closed to cost of goods sold.
2) Allocated Between Accounts (Proration Approach)
Under and over applied overhead costs can also be disposed off by prorating to work in process,
finished good inventory and cost of goods sold. Assume the following information is pertaining
to Awash Manufacturing Company:
Total End of Year Manufacturing Overhead Allocated
Balance Component of Year-End-Balances
Before Proration Before Proration
Work In Process 11,400.00 3,907.00
Finished Good 18,600.00 7,814.00
Cost of Goods Sold 427,500.00 183,629.00
Total 457,500.00 195,350.00
 Further, assume that the manufacturing overhead control account shows a debit
balance of Birr 192,650.00, which shows an over-applied balance of Birr
2,700.00. The over applied amount of manufacturing overhead will be prorated to
work in process, finished good, and cost of goods sold.
o The proration base may be on the basis of the manufacturing overhead applied to the
three accounts, or on the respective balance of the three accounts.
o Prorating on the basis of the Manufacturing Overhead Applied is theoretically sound
than using the year-end balance.
 Proration on the basis of the Manufacturing Overhead Applied

Account Account Manufacturing Proration of the Account
Balance Overhead Over Allocated Balance After
Applied (%) OH Proration
Work in process 11,400.00 3,907.00 2% X 2,700.00 11,346.00
= 2% = 54
Finished good 18,600.00 7,814.00 4% X 2,700.00 18,492.00
= 4% = 108
Cost of goods sold 427,500.00 183,629.00 94% X 2,700.00 424,962.00
=94% = 2,538.00
Total 457,500.00 195,350.00 2,700.00 454,800.00
 The following journal entry is required to show the proration of the over allocated OH.
Debit Credit
Work in Process 54.00
Finished Good 108.00
Manufacturing Overhead –Control 192,650.00
OR
Debit Credit
Manufacturing Overhead Control 2700.00
Work in Process 54.00
 The over allocated amount is prorated and the balance of work in process, finished good, and cost of
goods sold is reduced. The amount is reduced because the costs of the three accounts initially charged
higher than the actual, and thus the balance must be reduced.
 Proration on the basis of the Year-End Balance

 The over allocated amount can be prorated on the basis of the year-end balance of the respective accounts
as well.
Account Account Proration of the over allocated Account
balance overhead balance after
proration
Work in process 11,400.00 11,400/457,500.00 = 2.5% 11,332.50
(2.5% X 2,700.00 = 67.5)
Finished good 18,600.00 18,600.00/457,500.00 = 4% 18,492.00
(4% X 2,700.00 = 108)
Cost of goods sold 427,500.00 427,500.00/457,500.00 = 93.5% 424,975.50
(93.5% X 2,700.00 = 2,524.5)
Total 457,500.00 2,700.00 454,800.00
 The journal entry is the same except that the amount is different.
The journal entry looks the following:

Debit Credit
Work In Process 67.50
Manufacturing Overhead –Control 192,650.00
OR
Debit Credit
Manufacturing Overhead Control 2700.00
Work In Process 67.50
 ILLUSTRATION
 To illustrate the procedures used to accumulate and assign costs to a job in job order costing
system, assume that ABC Furniture Factory has three jobs in the coming year – Job no. 555,
Job no. 556, and Job no. 557.
Job No. 555 is a job order received from Bantu University for 1,000 student chairs, and Job no.
556 is production of 30 coffee tables for stock, and Job no. 557 is production of 20 cupboards for
stock. To keep the illustration simple, assume there is no beginning inventory of, work in
process, and finished goods.
1. The beginning inventory of direct materials consisted of:

 Material A------------22,400.00
 Material B------------15,600.00
 Material C------------21,000.00
Total ---------------59,000.00
2. Direct materials amounting to118, 000.00 are purchased on January 26 from Tadu Wood
Processing, terms 2/10, n/60. The details are:
 Material A------------- 2,000.00
 Material B------------ 32,000.00
 Material C------------ 80,000.00
 Material D ----------- 4,000.00
Total --------------118, 000.00
 The following journal entry is required to record the purchase:

Debit Credit
Materials and Supplies – Control 118,000.00
Account Payable 118,000.00
 The materials and supplies account is a controlling account of the four types of materials,
A, B, C and D. The individual items will be posted to their respective subsidiary ledger.
3. Production is to commence and the following materials are issued:
 Material B---------------- 20,000.00
 Material C---------------- 12,000.00
 The issuance of direct materials is a change that needs to be recorded.
Debit Credit
Materials and Supplies –Control 32,000.00
 Now a separate Job cost sheet is needed to accumulate cost of each job. Assume from the
total materials, the three jobs are to be charged in the following way:
 Job 555----------12,800.00
 Job 556------------6,400.00
 Job 557 ----------12,800.00
Total--------------32,000.00
 Manufacturing overhead is applied at 70% of direct labor cost.
Job Cost Sheet
Date completed: February 20, 2003
Item 4154 – Student Chair
For: Customer - Bantu University
Direct Material Direct Labor Manufacturing Overhead
Date Req. Amount Date Hrs. Amount Date DLC Rate Amt.
No.
Jan. 28 906 12,800.00 Jan. 31 100 2,000.00 Feb. 13,200 0.7 9,240
2003 2003 28
Feb.14 909 24,000.00 Feb. 28 560 11,200.00 2003
2003 2003
Job Cost Sheet

Date completed: February 12, 2003
Item 4152 – Coffee Tables
For stock
Date Req. Amount Date Hrs. Amount Date DLC Rate Amt.
No.
Jan. 28 906 6,400.00 Jan. 31 50 1,000.00 Feb. 6,600 0.7 4,620
2003 2003 28
Feb. 14 909 12,000.00 Feb. 28 280 5,600.00 2003
2003 2003
Job Cost sheet

Date completed: March 28, 2003
Item 4152 – Cupboard
For stock
Date Req. Amount Date Hrs Amount Date DLC Rate Amt.
No. .
Jan. 28 906 12,800.00 Jan. 31, 100 2,000.00 Feb.28 13,200 0.7 9,240
2003 2003 2003
Feb. 14 909 24,000.00 Feb. 28 560 11,200.00
2003 2003
4. The total labor cost totaled 25,000.00, out of which 20,000.00 is indirect. The journal entry to
record the payroll for the month is as follows:
Debit Credit
Work in process 5,000.00
Wages payable. 25,000.00
 The total labor cost is to be charged to the three jobs in the following manner: Job no.
555 and Job no. 557 are to be charged 40% each, and Job no. 556 is charged 20%.
The amount then filled on the job cost sheet (refer the job cost sheet).
5. Additional raw materials are issued amounting to Birr 78,000.00. The detail is shown below:
 Material A --------------18,000.00
 Material B --------------23,000.00
 Material C---------------31,000.00
 Material D----------------6,000.00
Total ------------------------78,000.00
 Out of the total 78,000.00, materials amounting to Birr 18,000 are indirect materials
like glues. The journal entry to record the issuance of the direct and indirect
materials issued looks the following:
Debit Credit
Manufacturing Overhead 18,000.00
Material and Supplies- Control 78,000.00
 The three jobs are charged the 60,000.00 direct materials in the following manner:
 Job no. 555 ---------- 24,000.00
 Job no. 556----------- 12,000.00
 Job no. 557 ---------- 24,000.00
 Thus, the job cost sheet is filled for the direct materials (refer the job cost sheet)
6. Indirect manufacturing costs incurred during the month totaled Birr 4,000.00. The journal
entry to record the actual manufacturing overhead is as follows:
Debit Credit
Sundry accounts 4,000.00
7. The payroll for the month of July totaled 48,000.00. The indirect labor cost is Birr 20,000.
The direct labor cost (28,000) is charged to the three Jobs – Job no. 555, Job no. 556, and Job
no. 557 in 40%, 20%, and 40% respectively(11,200,5600,&11200.
 The following journal entry is required to record the payroll for the month of February.
Debit Credit
Wages payable 48,000.00
 The job cost sheets will be charged in the percentage given above. Look at the job cost sheet.
8. Manufacturing overhead is applied at 70% of direct labor cost. The following journal entry is
required to record the manufacturing overhead applied to the three jobs.
Debit Credit
Manufacturing overhead applied 23,100.00
(To record manufacturing overhead applied)
 The manufacturing overhead applied will be charged to the three jobs in the following
manner. Refer to the job cost sheet.
Jobs Direct Labor Overhead Rate Manufacturing
Cost Overhead Applied
Job no. 555 13,200.00 70% 9,240.00
Job no. 556 6,600.00 70% 4,620.00
Job no. 557 13,200.00 70% 9,240.00
9. Actual manufacturing OH cost for the month of February totaled 19,800.00. The journal
entry to record the actual manufacturing overhead is as follows.
Debit Credit
Manufacturing overhead – control 19,800.00
Sundry Accounts 19,800.00
10. Job no. 555 and Job 556 are completed and transferred to the finished good inventory
warehouse. To record the transfer, the job cost sheet must be summarized. The summary of
the two job cost sheets gives a total cost amount of Birr 59,240.00 and Birr 29,620.00
respectively. The journal entry to record the transfer looks the following:
Debit Credit
Finished good 88,860.00
(To record the transfer of units
completed )
 Job 555 is for 1,000 Student chairs, and Job 556 is for 30 Coffee tables. Thus, the unit cost of
each product is Birr 59.24 and 987.30 respectively. The following table shows the computation
of unit cost of items produced.
Job no. 555 Job no. 556
Total cost of production 59,240.00 29,620.00
Number of units produced 1,000 30
Cost per unit 59.24 987.30
11. Bantu University has paid Birr 85 per chair, and 5 coffee tables are sold for Birr 1,400.00
each during the month of February. The journal entry to record the sale of the Student chairs
and coffee tables is follows ((1000*85)+(5*1400)=92,000):
Debit Credit
Cash 92,000.00
Sales 92,000.00
 Since a perpetual inventory system is used, a separate record is maintained for cost of goods
sold. The journal entry to record the cost of goods sold is as
follows((59.24*1000)+(5*987.30)):
Debit Credit
Cost of goods sold 64,176.5
Finished good 64,176.5
 The unfinished job, job no. 557 represents the work in process at the end of the month of
February.
PART 2 PROCESS COSTING SYSTEM

4.1. Features of Process Costing
The process cost system accumulates costs without attempting to allocate them during the
accounting period to specific units of goods being manufactured. At the end of the fiscal period,
the average cost per unit is determined by dividing the total cost accumulated to the total number
of units produced. Because of these techniques, process costing is often referred to as average
costing. If the process costing system is used, the goods manufactured must be similar in nature
so that an average cost will be meaningful. The process cost system is commonly used in such
manufacturing operations as cement plants and flour mills, in which the production process is
standardized and continuous and the product remains essentially the same from day to day.
In many types of business use process costing, manufacturing consists of a progressive series of
distinct operations or processes. Usually each process is carried out in different department. A
unit cost may be computed for each process or department. This departmental unit cost may be a
useful to in measuring and controlling efficiency. The total cost of production determined by
adding up the departmental costs.
 Similarities between job-Order and Process Costing

1. The same basic purposes exist in both systems, which are to assign material, labor, and
overhead cost to products and to provide a mechanism for computing unit costs.
2. Both systems maintain and use the same basic manufacturing accounts, including MO, Raw
Materials, Work in Process, and Finished Goods.
3. The flow of costs through the manufacturing accounts is basically the same in both systems.
 Differences between Job-Order and Process Costing

Job-Order Costing Process Costing
1. Many different jobs are worked on 1. A single product is produced on a
during each period, with each job having continuous basis for long periods of time.
different production requirements. All units of product are identical.
2. Costs are accumulated by identical job. 2. Costs are accumulated by department.
3. The job cost sheet is the key document 3. The department production report is
controlling the accumulation of costs by a the key document showing the
job. accumulation and disposition of costs by a
4. Unit costs are computed by job on the department.
job cost sheet. 4. Unit costs are computed by department
on the department production report.
 In manufacturing process cost setting, each unit is assumed to receive the same amount of
direct materials cost, direct manufacturing labor costs, and indirect manufacturing costs. Unit
costs are computed by dividing total costs by the number of units.
 The principal difference between job order and process costing system is, thus, the extent of
the averaging used to compute unit cost. In job order costing each job differs in terms of
material used, labor incurred, and manufacturing overhead. Hence, it is impossible to assign
the same cost for different jobs. On the contrary, in the case of process costing, identical
units produced in mass took equal amount of direct material, direct labor, and manufacturing
overhead. Thus, the unit cost can be found by dividing total cost by the number of units
produced.
3. 2 The Flow of Costs in Process-Costing System with Sequential Production Departments
1. As direct materials and direct labor are used in production department ‘A’, these costs are
added to the Work-in Process inventory account for Department ‘A’. Overhead is applied
using Predetermined Overhead Rate. The POR is determined in the same way in job order
and process costing.
Work-in Process: Production Department ‘A’ xxx
Raw Materials xxx
Wage Payable xxx
Manufacturing overhead applied xxx
2. When production department ‘A’ completes its work on some units of product, these units of
product are transferred to production department ‘B’. The costs assigned to these goods are
transferred from the Work-in Process Inventory account for department ‘A’ to work-in
Process inventory account in department ‘B’, the costs assigned to those partially completed
products are called transferred-in costs1.
Work-in Process: Production Department ‘B’ xxx
Work-in Process: Production Department ‘A’ xxx
3. Direct material and direct labor are used in production department ‘B’, and manufacturing
overhead is applied using POR.
Raw Materials xxx
Wages Payable xxx
Manufacturing overhead applied xxx
4. Goods are completed in production department ‘B’ and transferred to the finished goods
warehouse.
Finished-Goods xxx
5. Goods are sold
Finished-Goods xxx
3. 3 Cost Accumulation Methods in Process Costing System

 When a firm produces identical lots of goods repetitively, maintaining a separate job cost
sheet would be unnecessarily expensive. The aggregate cost and the unit cost can be
computed without a job cost sheet, thus saving the costs associated with producing such
records.
 Costs accumulate by department over a certain period and the unit cost can be found by
dividing the total cost to the units produced during that period. Process costing system fit
among others to, paint manufacturers, oil refineries, sugar refineries, and salt producers.
 In process costing system, manufacturing costs, direct material, direct labor, and
manufacturing overhead costs are accumulated in the same way as job order costing system.
However, the costs are accumulated by department over some period of time than by
individual jobs.
 The time period over which the cost is to be accumulated depends on the information needs
of the company. It can be a week, two weeks, but no longer than a month most often. Cost
accumulation is much simpler for a process costing system than for a job order cost system.
1
Transferred-in costs are assigned to partially completed products that are transferred into one production
department from a prior department.
 Illustrating Process Costing
Assumptions: ABC Manufacturing Company manufactures thousands of Products ‘A’. These
components are assembled in the Assembly Department, upon completion the units are
completely transferred to the Testing Department. The process-costing system for product A has
a single direct cost category (Direct Materials) and a single indirect-cost category (Conversion
Costs). Direct materials are added at the beginning of the process in Assembly. Conversion costs
are added evenly during Assembly.
Case 1: Process costing with zero beginning and zero ending work in process inventory that
is all units are started and fully completed by the end of the accounting period.
Data for the Assembly Department for JANUARY 2001
Physical Units for January 2001
Work in process, beginning inventory (January 1) 0 units
Started during January 400 units
Completed and transferred out during January 400 units
Work in Process, ending inventory (January 31) 0 units
Total Costs for January 2001
Direct materials costs added during January Br.32, 000
Conversion costs added during January 24,000
Total Assembly Department costs added during January 56,000
Per unit cost:
Direct Material costs per unit (32,000/400) Br. 80
Conversion costs per unit (24,000/400) 60
Assembly Department costs per unit 140
Case 2: Process Costing with zero beginning but some ending work in process inventory
Data for the Assembly Department for FEBRUARY 2001
Physical Units for February 2001
Work in Process, beginning inventory (February 1) 0 units
Started during February 400 units
Completed and transferred out during February 175 units
Work in Process, ending inventory (February 28) 225 units
Total Costs for February 2001
Direct materials costs added during February Br.32,000
Conversion costs added during February 18,600
Total Assembly Department costs added during February 50,600
In addition, the Assembly Department estimates that the partially assembled units are on
averages 60% complete as to conversion costs.
 How should the co. calculate the cost of fully assembled units in February 2001 and the
cost of partially assembled units still in process at the end of February 2001?
Steps:
1. Summarize the flow of physical units of output.
2. Compute output in terms of equivalent units.
3. Compute equivalent unit costs.
4. Summarize total costs to account for.
5. Assign total costs to unit’s completed and to units in ending work in process.
 Equivalent Units:
 Material, labor and overhead costs are incurred at different rates in production process.
Direct material usually placed in production at one or more discreet points in the
process. In contrast, direct labor and manufacturing overhead, called conversion costs,
and usually are incurred continuously throughout the process.
 When an accounting period ends, the partially completed goods that remain in process
generally are at different stages of completion with respect to material and conversion
activity.
Example: Suppose there are 1000 physical units in process at the end of an accounting period.
Each of the physical units is 75% complete with respect to conversion. How much conversion
activity has been applied to these partially completed units?
Conversion activity occurs uniformly throughout the production process. Therefore, the amount
of conversion activity required to do 75% of the conversion on 1000 units is equivalent to the
amount of the conversion on 750 units. The number is computed as follows:
 1000 partially completed physical units in process * 75% complete with respect to
Conversion = 750
The term equivalent unit is used in process costing to refer to the amount of manufacturing
activity that has been applied to a batch of physical units. The 1000 physical units in process
represent 750 equivalent units of conversion activity.
The term equivalent unit is also used to measure the amount of direct materials represented by
the partially completed goods. Since direct materials are incorporated at the beginning of the
production process, the 1000 physical units represent 1000 equivalent units of direct material (
1000 physical units * 100% complete with respect to direct materials).
 Physical units and Equivalent units (Step 1&2)

Equivalent units is a derived amount of output units that takes the quantity of each input (factor
of production) in units completed or in work in process, and converts it into the amount of
completed output units that could be made with that quantity of input.
Equivalent Units
Flow of Production Physical Direct Conversion
Units Materials costs
Work in process, beginning 0
Started during current period 400
To account for 400
Completed & transferred out during current 175 175 175
period
Work In Process, Ending 225 225 135
225*100%; 225*60% 400
Accounted for 400 310
Work done in current period
Calculation of Product Costs (Steps 3, 4, and 5)
Total Prod. Direct Conversion
Costs Materials Costs
(Step 3) Costs added during February 50,600 Br. 32,000 Br. 18,600
Divided by equivalent units of work done incurrent period 400 310
Cost per equivalent unit Br. 80 Br. 60
(Step 4) Total costs to account for Br. 50,600
(Step 5) Assignment of costs:
Completed & transferred out (175 units) Br. 24,500 (175*80) (175*60)
Work in process, ending (225 units)
Direct Materials 18,000 225*80
Conversion costs 8,100 135*60
Total work in process 26,100
Total costs accounted for Br .50,600
Journal Entries
Work in Process- Assembly 32,000
Account Payable Control 32,000
(To record direct materials purchased and used in production)
Various accounts 18,600
(To record Assembly department conversion costs)
Work in Process- Testing 24,500
(To record cost of goods completed and transferred from Assembly to
Testing Department)
Case 3: Process costing with some beginning and some ending work in process inventory.
Data for the Assembly Department for MARCH 2001

Physical Units for March 2001
Work in Process, beginning inventory (March 1) 225 units
Direct Materials (100% complete)
Conversion costs (60% complete)
Started during March 275 units
Completed and transferred out during March 400 units
Work in Process, ending inventory (March 31) 100 units
Total Costs for March 2001
Work in process, beginning inventory
Direct materials (225 equivalent units * Br. 80/unit) Br. 18,000
Conversion costs (135 equivalent units * Br.60/unit) 8,100 Br. 26,100
Direct materials costs added during March 19,800
Conversion costs added during March 16,380
Total Costs to account for Br.62, 280
A) Weighted-Average Process Costing Method
 This method calculates the equivalent unit cost of the work done to date (regardless of
the period in which it was done) and assigns this cost to equivalent units completed and
transferred out of the process and to equivalent units in ending work in process inventory.
 The weighted average cost is the total of all costs entering in the work in process account
(regardless of whether it is from the beginning work in process or from work started
during the period) divided by total equivalent units of work done to date.
Physical Units and Equivalent Units (Step 1&2)

Step 1 Step 2
Equivalent Units
Units Materials costs
To account for 500
Completed and transferred out during current period 400 400 400
Work in process, ending (100*100%; 100*50%) 100 100 50
Accounted for 500
Work done in current period 500 450
Calculation of Product Costs (Steps 3, 4, and 5)

Total Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning Br. 26,100 Br. 18,000 Br. 8,100
Costs added during the current period 36,180 19,800 16,380
Costs incurred to date(cost to account for) Br. 37,800/ Br. 24,480/
Divided by Equivalent units of work done to date 500 450
Cost per equivalent unit of work done Br. 75.60 Br. 54.40
(Step 5) Assignment of Costs:
Completed and transferred out (400 units) 52,000 (400*75.60) (400*54.40)
Direct Materials 7,560 100*75.60
Conversion Costs 2,720 50*54.40
Total costs accounted for Br. 62,280
 Journal Entries
Account Payable Control 19,800
(To record Direct Materials Purchased and Used in Production)
Various accounts 16,380
(To record Assembly Department Conversion Costs)
(To record Cost of Goods Completed and Transferred from Assembly to
Testing Department)
B) First-in, First-out Method
 The FIFO process costing method assigns the cost of the previous period’s
equivalent units in beginning work-in process inventory to the first units
completed and transferred out of the process, and assigns the cost of equivalent
units worked on during the current period first to complete beginning inventory,
then to start and complete new units in ending work in process inventory
 This method assigns that the earliest equivalent units in the work in process-
assembly account are completed first.
 A distinct feature of the FIFO process-costing method is that work done on

beginning inventory before the current period is kept separate from work done in
the current period.
 Costs incurred in the current period and units produced in the current period are
used to calculate costs per equivalent unit of work done in the current period. (In
contrast equivalent unit and cost per equivalent unit calculations in the weighted
average method merge the units and costs in beginning inventory with units and
costs of work done in the current period.)
Physical Units and Equivalent Units (Step 1&2)

Step 1 Step 2
Equivalent Units
Units Materials Costs
To account for 500
Completed and transferred out during current period
 From beginning work in process
225*(100%-100%); 225*(100%-60%) 225 0 90
 Started and Completed
175*100%, 175*100% 175 175 175
Work in process, ending
100*100%; 100*50% 100 100 50
Accounted for 500
Work done in current period 275 315
 Calculation of Product Costs (Steps 3, 4, and 5)
Total Prod. Direct Conversion
Costs Materials costs
(Step 3) Work in process, beginning Br. 26,100
Costs added current period 36,180 19,800/ 16,380/
Divided by equivalent units of work done in current period 275 315
Costs per equivalent unit of work done in the current period Br. 72 Br. 52
(Step 4) Total Costs to account for Br. 62,280

(Step 5) Assignment of Costs:
Completed and transferred out (400 units)
Work in process, beginning (225 units) Br. 26,100
Direct Materials added in current period 0 0*72
Conversion costs added in current period 4,680 90*52
Total from beginning inventory 30,780
Started and completed (175 units) 21,700 175*72 175*52
Total costs of units completed & transferred 52,480
Direct Materials 7,200 100*72
Conversion Costs 2,600 50*52
Total work in process, ending 9,800

(To record cost of goods completed and transferred
from Assembly to Testing Department)
 Important points to note:

 The first physical units assumed to be completed and transferred out during the period are
the 225 units from the beginning work-in process inventory.
 Of the 275 physical units started, 175 are assumed to be completed. 400 physical units
were completed during March, the FIFO method assumes that the first 225 of these units
must have been started and completed during March.
 Ending work-in process inventory consists of 100 physical units-the 275 physical units
started minus the 175 of these physical units completed.
 Note that the physical units “to account for” equal the physical units “accounted for” (500
units)
 The equivalent unit calculated for each cost category focus on the equivalent units of
work done in the current period only. Under the FIFO method, the work done in the
current period is assumed to first complete the 225 units in beginning work in process.
The equivalent unit’s of works done in March on the beginning work-in process
inventory are computed by multiplying the 225 physical units by the percentage of work
remaining to be done to complete these units: 0% for direct materials, and 40% for
conversion costs.
3.4 Transferred-in Costs in Process Costing
 Transferred-in costs also called previous department costs are the costs incurred in a
previous department that are carried forward as the product’s cost when it moves to a
subsequent process in the production cycle. That is as the units move from one
department to the next, their costs are transferred with them.
 Transferred in costs are treated as if they are a separate type of direct material added at
the beginning of the process. In other words, when successive departments are involved,
transferred units from one department become all or a part of the direct materials of the
next department; however they are called transferred-in costs, not direct material costs.
Example: In our example as the assemble process is completed the department transfers the
units to its Testing Department. Here the units receive additional direct materials, such as
packing materials for shipment, at the end of the process. Conversion costs are added evenly
during the Testing Department’s process. As units are completed in Testing, they are
immediately transferred to Finished Goods.
 Data for the Testing Department for the month of March 2001 are:
Physical Units for March 2001
Work in Process, beginning inventory (March 1) 240 units
Transferred-in costs (100% complete)
Conversion costs (62.5% complete)
Transferred in during March 400 units
Completed during March 440 units
Work in Process, ending inventory (March 31) 200 units
Transferred-in costs (100% complete)
Costs of Testing Department for March 2001
Work in process, beginning inventory
Transferred-in costs (240 equivalent units*140/ equiv. un) Br. 33,600
Direct materials 0
Conversion costs (150 equivalent units * Br.120/unit) 18,000 Br. 51,600
Transferred-in costs during March
Weighted-average 52,000
FIFO 52,480
Direct materials costs added during March 13,200
Conversion costs added during March 48,600
A. Transferred-in costs and the Weighted-Average Method Equivalent Units
Flow of Production Physical Transferr DM CC
Units ed in costs
Transferred in during current period 400
To account for 640
Completed and transferred out during current period 440 440 440 440
200*100%; 200*0%; 200*80% 200 200 0 160
Accounted for 640
Work done to date 640 440 600
Total Prod. Transferred DMs CCs

Costs in costs
(Step 3) Work in process, beginning Br. 51,600 Br. 33,600 Br .0 Br. 18,000
Costs added in the current period 113,800 52,000 13,200 48,600
Costs incurred to date Br. 85,600/ Br. 13,20/ Br 66,600/
Divided by EU of work done to date 640 440 600
Cost per equivalent unit of work done Br. 133.75 Br. 30 Br. 111
(Step 5) Assignment of Costs
Completed and transferred out (440 units) 120,890 (440*133.75) (440*30) (440*111)
Transferred-in costs 26,750 200*133.75
Direct Materials 0 0*30
To record cost of goods completed and transferred from Testing to finished goods;
Finished Goods Control 120,890
Work-in Process: Testing 120,890
B. Transferred-in costs and the FIFO Method
Equivalent Units
Flow of Production Physical Transferred D. Ms Conv.
Units -in costs costs
Transferred-in current period 400
To account for 640
Completed and transferred out during current period:
From beginning work in process:
240*0%; 240*(100%-0%); 240* (100%-62.5%) 240 0 240 90
Started and Completed:
200*100%; for the three 200 200 200 200
200*100%; 200*0%;200*80% 200 200 0 160
Accounted for 640
Work done in current period 400 440 450
Total Prod. Transferred- DMs CCs
Costs in cost
(Step 3)Work in process, beginning Br. 51,600
Costs added current period 114,280 52,480/ 13,200/ 48,600/
Divided by EU of work done in current period 400 440 450
Costs per EU of work done in the current period Br. 131.20 Br. 30 Br. 108
(Step 5) Assignment of Costs
Completed & transferred out (440 units)
Work in process, beginning (240 units) Br.51,600
Transferred-in costs added in current 0 0*131.20
Direct Materials added in current 7,200 240*30
Conversion costs added in current 9,720 90*108
Total from beginning inventory 68,520
Started and completed (200 units) 53,840 200*131.20 200*30 200*108
Total costs of units completed & transferred 122,360
Transferred-in costs 26,240 200*131.20
Direct Materials 0 0*30
Total work in process, ending 43,520
To record cost of goods completed and transferred from Testing to finished goods.
Finished Goods Control 122,360
Work-in Process: Testing 122,360
PART 3 Operation Costing System
An operation is defined as a standardized method or technique that is performed repetitively

regardless of the distinguishing features of the finished goods. Operation Costing is a hybrid of
job costing and process costing that is applied to batches of similar products. Each batch of
products uses the same resources to the same extent as all other batches. Within each operation,
all product units are treated exactly alike using identical amounts of operation resources. As said
earlier job order costing assumes each job is a unique, distinct unit of product. Process costing
assumes each unit of product is virtually the same.
Operation costing is most commonly used when batches of similar products are made that are
virtually the same within the batch but each batch is a unique, distinct job. That means it is used
when the production process involves producing batches of similar products. Within each batch,
the products are treated as being exactly alike and the costs are assigned in a process costing
fashion. Across batches, however, costs may differ, and it may be appropriate to use a job cost
approach to keep track of the different batch costs.
In operation costing work orders initiate production. Product costs are compiled for each work
order which will be made up of two or more units of a product. Direct materials that are different
in work orders are specifically identified with appropriate order. Conversion costs are compiled
for each operation & then allocated to all units passing through the operation. A single average
unit C.C is used in each operation. Typical allocation bases are the number of units worked on &
the minutes used to complete the individual operation. An operation costing system uses work
orders that specify the needed D.M & Step- By-Step operations. Work orders for each batch
differ as to the combinations of D.M and operations to be undergone.

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Addis Ababa University, College of Business & Economics, Department of Accounting & Finance

COST AND MANAGEMENT ACCOUNTING I

 Features of Job Order Costing

 Cost Accumulation and Flow in Job Order Costing

A sample of Purchase Requisition form looks like the one as follows:

5 gallons Glue January 15, 2004

50 boxes Nails January 15, 2004

A sample Purchase Order looks the following:

Quantity Description Weight

4. Production Order – a manufacturer can produce in response to a customer order or just

A sample Production Order is presented here below.

Authorized by: Dereje Demissie

5. Material requisition – to commence production, evidently the production department

A sample Material Requisition form is shown below:

6. Job Cost Sheet

The following is a sample Job Cost Sheet:

A sample of Job Time Ticket is shown below

POR = 80,000 = 20 per direct labor hour.

March 18, 2003 Work in process 1,800.00

 The manufacturing overhead applied is a contra account to the actual manufacturing

 The entry to record the sales looks the following:

 The following entry is necessary to record the cost of goods sold.

Procurement Production Warehousing Selling

Raw Materials Work In Process Finished Good COGS

In Out In Out In Out In

Actual Costing versus Normal Costing

 The table below shows summary of Actual and Normal Costing

 Closed out to Cost of Goods Sold;

1) Closed out to Cost of Goods Sold

Manufacturing Overhead xxx

 The applied (allocated) manufacturing overhead is a contra account to manufacturing

 Proration on the basis of the Manufacturing Overhead Applied

 Proration on the basis of the Year-End Balance

The journal entry looks the following:

1. The beginning inventory of direct materials consisted of:

 The following journal entry is required to record the purchase:

Job Cost Sheet

Job Cost sheet

PART 2 PROCESS COSTING SYSTEM

 Similarities between job-Order and Process Costing

 Differences between Job-Order and Process Costing

3. 3 Cost Accumulation Methods in Process Costing System

 Physical units and Equivalent units (Step 1&2)

Data for the Assembly Department for MARCH 2001

Physical Units and Equivalent Units (Step 1&2)

Calculation of Product Costs (Steps 3, 4, and 5)

 A distinct feature of the FIFO process-costing method is that work done on

Physical Units and Equivalent Units (Step 1&2)

(Step 4) Total Costs to account for Br. 62,280

Work in Process- Testing 52,480

 Important points to note:

Total Prod. Transferred DMs CCs

PART 3 Operation Costing System

An operation is defined as a standardized method or technique that is performed repetitively

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