MODULE IN

COST ACCOUNTING AND CONTROL

RINCIPLES AND PRACTICES
AE 212

Department of Accountancy

SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING,

AND INFORMATION STUDIES

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 1
 AE 212: COST ACCOUNTING AND CONTROL
Week Topic Learning Outcomes Activities

MODULE 7 – Process Costing Lost Units

Week 10 1. Describe how lost units, • Compute for equivalent
increase in units, and units with normal loss
evaporation are • Prepare the cost of
accounted production report
for.Accounting for • Prepare journal entries to
increase in units. account for production.
2. Accounting for Normal
lost units
3. Cost of production report

Week 11 1. Accounting for Abnormal • Compute for equivalent

lost units units with abnormal loss
2. Cost of production report • Prepare the cost of
production report
• Prepare journal entries to
account for production.
Do graded activity

MODULE 7:
PROCESS COSTING – INCREASE & LOST UNITS

In several manufacturing firms all materials that are needed to produce the product are
placed into process in the initial department. There are times however when additional materials
need to be added in the succeeding departments in order to complete the manufacture of a
product. The materials added can have two possible effects on the number of units as well as the
costs placed into process. These are:
1. The materials added will simply increase the unit cost, since these materials become part of the
finished product, however, the materials added do not necessarily increase the number of the
final units. An example is that of a car assembly plant, the additional parts that are added in a
succeeding department do not increase the number of cars being assembled.
2. The materials added will increase the number or volume of units, thereby causing a change in
the unit cost. In processing a chemical, water is often added to a mixture, causing an increase
in the number of units and a spreading of costs over a greater number of units. (Matz et.al, 1991)

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 2
 INCREASE IN UNITS
The additional materials in some production process can bring about an increase in the total
volume or number of units of the product. For example in the manufacture of shampoo, the
ingredients are often mixed in one department and water being added in a succeeding department.
The addition of the water increases the volume of liquid shampoo to be accounted for. Increasing
the quantity of liquid shampoo reduces the unit cost of prior department cost since the total prior
department’s cost will have to be allocated to a larger volume of product. This is true because the
increased quantity of liquid product absorbs the same total amount of the preceding department
cost.
Simple process cost problems with increase in units as a consequence of adding materials are
illustrated as follows:

FIFO
The Multiplicator Company produces its product in three departments. In Department 3, materials
added double the number of units. The following data pertain to operations of Department 3 in
March:
Units
Received from Department 2 10,000 units
Transferred to storeroom 16,000 units
In Process, end (100% complete as to materials, 50%
complete as to labor & overhead)
Costs
Transferred from Department 2 P 15,000
Added this department:
Materials P 4,400
Labor 4,500
Overhead 3,600
The Cost of Production Report for Department 3 of the Multiplicator Company is shown as follows:

Multiplicator Company
Cost of Production Report
For the Month Ended March 31, 2007

Department 3

Quantity Schedule: Units

Received from Dept. 2 10,000
Increase in units 10,000
Total to be accounted for 20,000

Accounted for as follows: Actual Work Materials Work Conversion

done done Cost
Finished & Transferred 16,000 100% 16,000 100% 16,000
In process, March 31 4,000 100% 4,000 50% 2,000

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 3
 Units as accounted for 20,000
Equivalent Production 20,000 18,000

Cost Analysis: Total Cost Unit Cost

Materials P 4,400 P 0.22
Labor 4,500 0.25
Factory Overhead 3,600 0.20
Total Factory Cost P12,500 P 0.67
Add: Cost from Dept. 2 (P15,000/20,000 u) 15,000 0.75
Total Cost to be accounted for P27,500 P1.42

Accounted for as follows:

Finished & Transferred: 16,000 units
Cost, prior department @ P0.75 P12,000
Cost, this department @ P0.67 10,720
Total cost transferred to storeroom @ P1.42 P 22,720
In process, March 31 4,000 units
Cost, prior department @ P0.75 P 3,000
Cost, this department:
Materials (4,000 units x P0.22) 880
Labor & OH (4,000 units x P.45 x 50%) 900 4,780
Total Cost as Accounted for P 27,500

Note that the prior department’s (Department 2) cost has been adjusted and allocated to a larger
quantity, that is, P 15,000 being allocated to 20,000 units increase quantity arriving at a new revised
prior department’s unit cost at P0.75.
Thus:
Revised Unit Cost = Prior Department’s Cost
Increased Quantity

AVERAGE
Dumami Manufacturing Company manufactures its product in two departments. The addition
of materials at the start of the process in Department 2 increases the quantity by 5%. The following
data are on its March production:
Cost Data Units
Work in process, beg Work in process, beg - ½ done 3,000
Cost from Dep't 1 48,000.00 Received from Dep't 1 20,000
Cost this Dep't Work in process, end – 2/5 done 5,000
Materials 7,500.00
Labor 2,725.00
Overhead 2,000.00
Received from Dep't 1 335,400.00
Cost Added this month
Materials 29,100.00
Labor 20,900.00
Overhead 14,275.00

The cost of production report is prepared as follows:

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 4
 Dumami Manufacturing Company
Cost of Production Report
For the Month Ended March 31, 201A

Department 2
Quantity Schedule:
WIP, beg 3,000
Received from Dep't 1 20,000
Increase in Units (5% x 20,000) 1,000
Total Units to be Accounted for 24,000
Work Work Conversion
Accounted for as follows: Actual Done Materials Done Cost
Finished and Transferred 19,000 100% 19,000 100% 19,000
WIP, end 5,000 100% 5,000 2/5 2,000
Units as Accounted For 24,000
Equivalent Production 24,000 21,000
Cost Analysis:
Cost from Preceding Dep't Units Total Cost Cost/u
WIP, beg 3,000 P 48,000 P 16.000
Received this Month 20,000 335,400 16.770
Increase in Units 1,000 - -
Total 24,000 P 383,400 P 15.975
Cost this Department WIP, beg This Month
Materials P 7,500 P 29,100 P 36,600 P 1.525
Labor 2,725 20,900 23,625 1.125
Overhead 2,000 14,275 16,275 0.775
Total P12,225 P 64,275 76,500 3.425
Total Cost to be Accounted For P459,900 P 19.400

Accounted for as Follows:

Finished and Transferred 19,000 P 368,600
WIP, end 5,000
Cost from Preceding Dep't P 79,875
Cost this Department
Materials P 7,625
Labor 2,250
Overhead 1,550 11,425 91,300
Total Cost Accounted For P 459,900

LOST UNITS

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 5
 In the previous chapter, it is assumed that all units put into production were either finished or
unfinished with no units getting lost in the production process. This section of the chapter examines
the complications that arise when some units get lost in the production process.
Continuous processing can lead to the possibility of waste, shrinkage, and other possible factors
that can cause loss or spoilage of production units. Whether as a result of accidents, machine
malfunctions, poor workmanship, or substandard materials, it is to be expected that some portion of
the production process will have to be scrapped. To the extent that this spoilage is unavoidable is
properly included as one of the costs of obtaining good units of inventory. On the otherhand, spoilage
above and beyond the normal spoilage is treated as a loss. Thus one of our tasks in dealing with
spoilage will be to segregate normal from abnormal loss. Normal loss is defined as the average
spoilage necessary in the production process and will be included as an inventoriable cost. Being
inherent in the production process this loss is otherwise known as “unavoidable loss”. Thus, the cost of
normal loss is absorbed in the finished units as well as the units still in process. Abnormal loss is defined
as the spoilage in excess of average and will be treated as a period loss. (Moriarity, et.al. 1984) This
type of loss is otherwise known as “avoidable loss”. Thus abnormal loss is accounted for separately like
the way we account for finished units and units still in process.

NORMAL LOSS: THEIR EQUIVALENT PRODUCTION AND COST

In accounting for lost units, it is important to identify the stage of the manufacturing process
where the lost units occur.

Lost Units Occurring at the Start of the Process.

The normal loss, considered part of the production process, is generally allocated to the remaining
good units. The cost absorbed by the lost units will depend on the stage of production process where
the lost units have occurred. Hence it is vital to know whether the lost units occurred at the start;
during; or at the end of the production process. Identifying in what department the lost units have
occurred whether it is the initial department or succeeding department is as important. When the lost
units occurred at the start of the production process in the initial department, it is assumed that the
equivalent production is zero and the cost also zero, hence, there are no adjustments made on the
remaining good units. However, if the lost units occurring at the start of the process happened in a
succeeding department, while the equivalent production is still zero, its cost is no longer zero because
it has already absorbed the cost of the prior department, which is then allocated to the remaining
good units regardless of stage of completion. Remaining good units in this context is defined as the
units left after deducting the lost units from the total units started in process. The method being
described is otherwise known as Method I. This method is sometimes called the Theory of Neglect that
the lost units were never placed into process regardless of the amount of work performed on them.
The advantage of Method I is its simplicity.

Lost Units Occurring During the Process.

Units getting lost during the process may be accounted for in two different methods. The first
method follows the same assumption with that of Method I as described previously. That is, the
equivalent production of lost units occurring during the process is likewise zero and the cost is also zero
when the loss occurred in the initial department. If the lost units occurred during the process in a
succeeding department, its cost is also the prior department’s cost which is then allocated to the
remaining good units regardless of stage of completion. Method I assumes that the loss is identified

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 6
 with those started during the period and is more popularly used compared to Method II which is
discussed below.
The procedure adopted by Method II is similar to that of Method I, its difference lies only in the
allocation of the cost absorbed by the lost units. In Method II the cost absorbed is allocated to the
remaining good units based on their stage of completion or in other words the equivalent production.
This is true because Method II assumes that the lost units are identified with both the beginning work
in process as well as units started during the period, hence remaining good units in this context include
opening work in process and started in process. The table on the next page summarizes Method I and
Method II.
Applicability Initial Succeeding Department
Method Department
Lost Units - Start Equivalent Production = zero Equivalent Production = 0
I & II of process Cost absorbed = zero Cost = prior department
Cost Allocated to =
Remaining Good Units
Lost Units – Equivalent Production = zero Equivalent Production = 0
I During the Cost absorbed = zero Cost = prior department
process Cost Allocated to =
Remaining Good Units
Lost Units – Equivalent Production = zero Equivalent Production = 0
II During the Cost absorbed = zero Cost = prior department
process Cost Allocated to =
Remaining Good Units
based on Stage of
Completion (Equivalent
Production)
It is to be emphasized at this stage that in most of the solutions to Philippine CPA examinations,
Method I is used. (Mejorada, 2002)

Lost Units Occurring at the End of the Process.

When units are lost at the end of the process, their equivalent production as well as their cost is a
hundred percent (100%). The cost absorbed by the lost units is then allocated to the finished units
only. This may be summarized a tabular form as follows:

Initial Department Succeeding Department

Equivalent production = 100% Equivalent production = 100%
Cost absorbed = this department’s cost Cost absorbed = cost of initial dept & this dept
Cost Allocated = finished units Cost Allocated = finished units

The following problem illustrates the cases previously discussed.

The Bokod Company produces a pharmaceutical product which is processed in three successive
departments. There are lost units in all departments.
In Dept 1, lost units are discovered at the start of the process;
In Dept 2, the units are lost at the end of the process; while
In Dept 3, during the process.
The production records for March showed the following:
Dept 1 Dept 2 Dept 3

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 7
 Units:
Started in process 20,000 - -
Received from prior dept - 16,000 14,000
Units lost in process 1,000 1,000 1,000
In process, end 3,000 1,000 3,000
Stages of Completion 1/3 1/2 2/3

Costs:
Materials P 10,000 P 9,500 P 3,000
Labor 4,000 5,100 2,200
Manufacturing Overhead 3,000 4,000 2,000

The Cost of Production of the three producing departments are as follows:

Bokod Company
Cost of Production Report
For the Month Ended March 31, 2007
Department 1
Quantity Schedule:
Started in process 20,000 units

Accounted for as follows: Actual Work Equivalen

done t
Productio
n
Finished and Transferred 16,000 100% 16,000
In process, March 31 3,000 1/3 1,000
Lost units, start 1,000 - -
Total units as accounted for 20,000 17,000

Cost Analysis Total Cost Unit Cost

Materials P10,000 P 0.5882
Labor 4,000 0.2353
Manufacturing overhead 3,000 0.1765
Total to be accounted for P17,000 P 1.00

Accounted for as follows: Units Total Cost

Finished and Transferred (16,000 u x P1) 16,000 P 16,000
In process, March 31 (3,000u x 1/3 x P1) 3,000 1,000
Total cost as accounted for P 17,000

From the above Cost of Production Report, observe that the lost units found at the start of the
process have a zero equivalent production and since they occurred in the first department, the lost
units absorbed no costs at all.

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 8
 Bokod Company
Cost of Production Report
For the Month Ended March 31, 2007
Department 2

Quantity Schedule:
Received from Dept 1 16,000 units

Accounted for as follows: Actual Work Equivalent

done Production
Finished and Transferred 14,000 100% 14,000
In process, March 31 1,000 ½ 500
Lost units, end 1,000 100% 1,000
Total units as accounted for 16,000 15,500

Cost Analysis Total Cost Unit Cost

Materials P 9,500
Labor 5,100
Manufacturing overhead 4,000
Total factory cost P 18,600 P 1.20
Add: Cost from Dept 1 16,000 1.00
Total to be accounted for P 34,600
Adjustment for lost units:
Cost, prior dept(1,000u x P1) P 1,000
Cost, this dept(1,000u x P1.20) 1,200
Total cost absorbed P 2,200
(P2,200 / 14,000 finished units) 0.1571428
P2.3571428

Accounted for as follows: Units Total Cost

Finished and Transferred 14,000
Cost, prior department @ P1 P 14,000
Cost, this department @ P1.20 16,800
Adjustment for lost units @ P0.1571428 2,200
Total cost transferred to Dept 3 @P2.357148 P 33,000
In process, March 31 1,000
Cost, prior dept @ P1 P1,000
Cost, this dept (1,000u x ½ x P1.20) 600 1,600
Total cost as accounted for P 34,600
In this department, the lost units occurred at the end of the process, hence the equivalent
production is 100%, its cost includes cost from department 1 and in this department (department 2
cost). Such cost absorbed by the lost units necessitates adjustment in the unit cost to be accounted
for. The cost absorbed is allocated to the finished units or 14,000 units for Bokod Company. It is to be
noted that the ending work in process do not share in the adjustment of the lost units.

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 9
 For purposes of illustration in Department 3, Method II is used.

Bokod Company
Cost of Production Report
For the Month Ended March 31, 2007
Department 3
Quantity Schedule:
Received from Dept 2 14,000 units

Accounted for as follows: Actual Work Equivalent

done Production
Finished and Transferred 10,000 100% 10,000
In process, March 31 3,000 2/3 2,000
Lost units, during 1,000 - -
Total units as accounted for 14,000 12,000

Cost Analysis Total Cost Unit Cost

Materials P 3,000 P 0.25000
Labor 2,200 0.18333
Manufacturing overhead 2,000 0.16667
Total factory cost P 7,200 P 0.60000
Add: Cost from Dept 2 33,000 2.35714
Total to be accounted for P 40,200
Adjustment for lost units:
Cost, prior dept(1,000u x P2.35714 = P2,357.14 ÷ 12,000 units 0.196423
equivalent production)
P 3.15357

Accounted for as follows: Units Total Cost

Finished and Transferred 10,000
Cost, prior department @ P2.35714 P23,571.43
Cost, this department @ P0.60 6,000.00
Adjustment for lost units @ P0.19643 1,964.29
Total cost transferred to storeroom @P3.15357 P31,535.72
In process, March 31 3,000
Cost, prior dept @ P2.35714 P7,071.42
Cost, this dept (3,000u x 2/3 x P0.60) 1,200.00
Adj for lost units(3,000 u x 2/3 x P0.19643) 392.86 8,664.28
Total cost as accounted for P40,200.00

It is to be noted that the cost of the lost units were allocated to the remaining good units based
on their stage of completion or equivalent production.

THE INSPECTION POINT

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 10
 Units lost are not usually specifically identified for accounting purposes. They are simply classified
as either lost at the start, progressively during the process or at the end of the process. This is usually
done for simplicity. There are times however, when lost units are identified at specific points of
inspection. In which case, the equivalent production of the lost units will depend at the point when
inspection took place and its cost is then allocated to the good units that have passed the point of
inspection.
To illustrate this concept, consider this problem: Baguio Company uses process costing. All
materials are added at the beginning of the process. The produce is inspected when it is 80%
converted, and spoilage is identified only at that point. Normal spoilage is expected to be 5% of
good output. During July, 10,500 units were put into process. Current costs were P52,500 for materials;
P39,770 for labor; and P31,525 for factory overhead. The 3,000 units still in process at the end of July
were estimated to be 90% complete. All spoilage was normal. A total of 7,000 units were transferred
to finished goods. The cost of production report for Baguio Company in the month of July is as follows:

Baguio Company
Cost of Production Report
For the Month Ended July 31, 2011

Quantity Schedule:
Started in Process 10,500 units

Accounted for as follows: Actual Work Materials Work Done Labor &
Done Overhead
Finished and Transferred 7,000 100% 7,000 100% 7,000
In process, end 3,000 100% 3,000 90% 2,700
Normal lost units 500 100% 500 80% 400
Total units as accounted 10,500
Equivalent Production 10,500 10,100

Cost Analysis: Total Cost Unit Cost

Materials P52,500.00 P 5.00000
Labor 39,770.00 3.93762
Overhead 31,525.00 3.12129
Total Cost to be accounted for P123,795.00 P 12.05891
Adjustment for lost units:
Materials (500 x P5) P 2,500.00
Labor&OH(500x P7.0589x 80%) 2,823.56
Total cost absorbed allocated to good units (10,500-500) P5,323.53 0.53236
Total Unit Cost P 12.59127

Accounted for as follows:

Finished and Transferred at P12.59127 7,000 units P88,138.89
In Process, July 31 3,000 units
Materials @ P5 P15,000.00
Labor & OH (3,000 u x 90% x P7.05891) 19,059.06
Adj for lost units (3,000 u x0.53236) 1,597.08 35,656.12
Total cost as accounted for P123,795.00

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 11
 ABNORMAL LOSS: EQUIVALENT PRODUCTION AND COST
Abnormal loss refers to losses that are not expected to occur under efficient operating conditions
hence, abnormal loss is treated as period loss. Inefficient labor, defective materials are some
examples that can cause abnormal loss. Like normal loss, abnormal loss may also be discovered at
any point of the process, either, start, progressively during the process or end of the process Shown
on the next page is a summary of the equivalent production as well as cost absorbed by the abnormal
loss when discovered at the start, during or end of the production process.
Stage of
Process Initial Department Succeeding Department
START Equivalent Prod’n = zero Equivalent Prod’n = zero
Cost = zero Cost = Prior Department
DURING Equivalent Production = Stage of Equivalent Production = Stage of
Completion Completion
Cost = Cost this dept based on Cost = Prior Dept + Cost this dept. based
stage of completion on stage of completion
END Equivalent Production = 100% Equivalent Production = 100%
Cost = Cost this Department Cost = Prior Dept + Cost this dep’t

For purposes of illustrating the simultaneous occurrence of normal and abnormal loss in a given
situation when loss occurs in a succeeding department, consider the data pertaining to Alekssandra
Manufacturing with regards its operations in Department B for the month of July:

Units received from Department A 25,000

In process, end, 1/3 completed 7,500
Abnormal lost units at end of process 2,500
Normal lost units at start of process 5,000
Transferred to stockroom ?
The cost of transferred units to Department B was P75,000; costs incurred by Department B during the
month: Materials, P15,000; Labor, P9,000 and factory burden, P6,000.

The Cost of Production Report for Department B for Alekssandra Company is as follows:

Alekssandra Manufacturing
Cost of Production Report
For the Month Ended July 31, 2007
Department B

Quantity Schedule
Received from Department A 25,000 units

Accounted for as follows: Actual Work Done Equivalent

Production
Finished and Transferred 10,000 100% 10,000
In process, July 31 7,500 1/3 2,500
Abnormal Loss, end 2,500 100% 2,500
Normal Loss, start 5,000 - -
Units as accounted for 25,000

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 12
 Equivalent Production 15,000

Total Cost Unit Cost

Cost Analysis
Materials P15,000
Labor 9,000
Overhead 6,000
Total Factory Cost 30,000 P 2.00
Add: Cost from Dept. A 75,000 3.00
Total Cost to be Accounted for P105,000
Adjustment for lost units:
P5,000 x P3 = P15,000 /20,000 units 0.75
P5.75
Accounted for as follows:
Finished and Transferred 10,000 u
Cost, prior department @ P3 P30,000
Cost, this department @ P2 20,000
Adjustment for lost units @P.75 7,500
Cost transferred to storeroom @P5.75 P57,500
In process, July 31 7,500 u
Cost, prior department @ P3 P22,500
Cost, this dept(7,500u x P2 x 1/3) 5,000
Adj for lost units @ P0.75 5,625 33,125
Cost charged to production P90,625
Abnormal lost units 2,500 u
Cost, prior department @ P3 P 7,500
Cost, this department @ P2 5,000
Adjustment for lost units @P.75 1,875
Cost charged to abnormal loss 14,375
Total Cost as Accounted for P105,000

Illustrative Problem – Increase in Units and Lost Units

For the month of March, the cost data of the Apollo Manufacturing were as follows:

Cost: Dept A Dept B Dept C

Material cost P210,000 P 90,000 P136,000
Labor cost 111,600 56,000 60,000
Overhead 27,900 28,000 15,000
Units:
Put into production 72,000 - -
Increase in units due to
addition of materials - 20,000 30,000
Received from preceding dept - 60,000 60,000
Completed and transferred 60,000 60,000 70,000
Normal lost units, start 2,000 5,000 5,000
In process, March 31
Stage of completion:
Materials 100% 100% 100%

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 13
 Conversion costs 1/5 2/3 1/3
Required: Cost of production reports for Depts A, B and C.

Apollo Company
Cost of Production Report
For the Month Ended March 31, 201X
Department A

Quantity Schedule
Started in process 72,000 units
Accounted for as follows: Actual Work Materials Work Conversion
Done Done Cost
Finished & Transferred 60,000 100% 60,000 100% 60,000
In process, end 10,000 100% 10,000 1/5 2,000
Lost units, start 2,000 - - - -
Units accounted for 72,000
Equivalent Production 70,000 62,000

Cost Analysis Total Cost Unit Cost

Materials P 210,000 P 3.00
Labor 111,600 1.80
Overhead 27,900 0.45
Total Cost to be accounted for P 349,500 P 5.25
Accounted for as follows:
Finished and Transferred @ P5.25 60,000 u P315,000
In process, end 10,000 u
Materials at P3 P 30,000
Labor and Overhead (10,000 x P2.25 x 1/5) 4,500 34,500
Total Cost as Accounted for P349,500

Apollo Company
Cost of Production Report
For the Month Ended March 31, 201X

Department B

Quantity Schedule
Received from Dept A 60,000
Increase in units 20,000
To be accounted for 80,000
Accounted for as follows: Actual Work Materials Work Conversion
Done Done Cost
Finished & Transferred 60,000 100% 60,000 100% 60,000
In process, end 15,000 100% 15,000 2/3 10,000
Lost units, start 5,000 - - - -

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 14
 Units accounted for 80,000
Equivalent Production 75,000 70,000

Cost Analysis Total Cost Unit Cost

Materials P 90,000 P 1.2000
Labor 56,000 0.8000
Overhead 28,000 0.4000
Total Factory cost P 174,000 P 2.4000
Add: Cost from Dept A 315,000 3.9375
Total cost to be accounted for P 489,000
Adjustment for lost units:
(5,000 x P3.9375=P19,687.50/75,000good units) 0.2625
P 6.6000
Accounted for as follows:
Finished and Transferred 60,000 u
Cost prior dept. @ P3.9375 P236,250
Cost this dept. @ P2.40 144,000
Adjustment for lost units @ P0.2625 15,750
Total cost transferred to Dept C @P6.60 P396,000
In process, end 15,000 units
Cost prior dept. @ P3.9375 P59,062.50
Cost this dept.
Materials (15,000u x P1.20) 18,000.00
Labor & OH (15,000u x P1.20 x 2/3) 12,000.00
Adjustment for lost units @ P0.2625 3,937.50 93,000
Total Cost As Accounted For 489,000

Apollo Company
Cost of Production Report
For the Month Ended March 31, 201X
Department C
Quantity Schedule
Received from Dept B 60,000
Increase in units 30,000
To be accounted for 90,000
Accounted for as follows: Actual Work Materials Work Conversion
Done Done Cost
Finished & Transferred 70,000 100% 60,000 100% 70,000
In process, end 15,000 100% 15,000 1/3 5,000
Lost units, start 5,000 - - - -
Units accounted for 90,000
Equivalent Production 85,000 75,000
Cost Analysis Total Cost Unit Cost
Materials P136,000 P 1.6000
Labor 60,000 0.8000
Overhead 15,000 0.2000
Total Factory cost P 211,000 P 2.6000
Add: Cost from Dept B 396,000 4.4000
Total cost to be accounted for P 607,000

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 15
 Adjustment for lost units:
(5,000 x P4.40 = P22,000 / 85,000 good units) 0.2588235
P7.2588235

Accounted for as follows:

Finished and Transferred 70,000 u
Cost prior dept. @ P4.40 P308,000.00
Cost this dept. @ P2.60 182,000.00
Adj for lost units @ P0.2588235 18,117.65
Total cost transferred to [email protected]
P508,117.65
In process, end 15,000 units
Cost prior dept. @ P4.40 P 60,000.00
Cost this dept.
Materials (15,000u x P1.60) 24,000.00
Labor & OH (15,000u x P1.00 x 1/3) 5,000.00
Adj for lost units @ P0.2588235 3,882.35 98,882.35
Total Cost As Accounted For P607,000.00

EVAPORATION

A special type of unavoidable loss in production similar to shrinkage is evaporation. Evaporation

is a normal loss that is expected in certain products due to the nature of the materials that compose
the product and the required manufacturing process. This type of normal loss, is discussed separately
because of its effect on the quantity schedule measured in terms of actual production units.
Computations involve working backwards to arrive at original quantities from available production
data which is generally net of the evaporation loss. (Matz, 1991)

For example, Evaporation Co. manufactures its product, Condensada, in two successive
departments, I and II. In Department II, the process takes 20 days, during which the product or units
in process suffer 10% evaporation proportionately with the process. During the month of March,
Department I transferred to Department II, 30,000 units at a cost of P60,000. Operations of Dept II for
the month follows:
Units: In process, March 1 975 (1/4)
Transferred to storeroom 25,200
In process, March 31 2,850
Costs: In process, March 1 P 2,000
Materials 39,200
Labor 25,000
Overhead 15,000
The following computations are necessary in the preparation of the cost of production report for
Evaporation Co., as follows:
• First, compute for the rate of evaporation:
Rate of evaporation per day = 10 % = .005 / day
20 days
• Computation of original quantities:
In process, beg – 975 units with ¼ stage of completion
Days in process = ¼ x 20 days = 5 days
Evaporation % = 5 days x .005/day = .025
Original volume is:

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 16
 975 = 1 – 0.025
975 / 0.975 = 1,000 (original volume)
Finished &Transferred: 25,200 units and has suffered 10% evaporation
Original volume = 25,200 / 90% = 28,000 units
Note: Of the 28,000 units, 1,000 originally came from beginning in process and 27,000 units coming
from units started in process.

Evaporation Co.
Cost of Production Report
For the Month Ended March 31, 201X
Department II

Quantity Schedule
Actual Net Work Equivalent
Done Production
In process, March 1 1,000
Received from Dep1t I 30,000
To be accounted for 31,000

Accounted for as follows:

Finished & Transferred
In process, March 1 1,000 900 3/4 675
Started this month 27,000 24,300 100% 24,300
In process, March 31 3,000 2,850 1/2 1,425
Units as accounted for 31,000
Equivalent production 26,400

Cost Analysis Total Cost Unit Cost

Materials P 39,200
Labor 25,000
Overhead 15,000
Total Factory Cost P 79,200 P 3.00
Add: In process, March 1 2,000
Cost, Department I 60,000 2.00
Total cost to be accounted for P141,200 P 5.00

Accounted for as follows:

Transferred to storeroom 25,200 u
In process, March 1 (900 units)
Cost last month P 2,000
Cost this month (900u x P3 x 75%) 2,025 P 4,025
Received from Dept I (24,300 u)
Cost, Dept I (27000u x P2) P 54,000
Cost, Dept II (24,200u x P3) 72,900 126,900
Total cost of goods manufactured P 130,925
In process, March 31 2,850 u
Cost, Dept 1 (3000 units x P2) P 6,000
Cost, Dept II (2850 units x P3 x ½) 4,275 10,275
Total Cost as accounted for P 141,200

Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 17