Land P5,400,200 Sales P2,526,350

Building 3,554,600 Purchase Ret. and Allow.

Gross Profit Accounts Receivable 89,632
240,682 Freight Out 15,400
Computing Cost of Goods Sold Cash on Hand 157,441 Miscellaneous Expenses
Cash in Bank 1,302,695 56,396
Merchandise Inventory, beginning Inventory, beginning Purchase Discounts 67,252
Add: Cost of Goods Purchased (Net purchases) 421,090 Sales Ret. and Allow.
Merchandise available for sale Inventory, end 275,734 120,250
Less: Merchandise Inventory, end Accounts Payable 275,100 Sales Discounts 31,111
Cost of Goods Sold Capital 4,202,201 Sales Salaries Expense.
Purchases 708,568 862,984
To compute for Cost of Goods Purchased or Net Freight In 26,507
Purchases: Finance Charges 9,239

Purchases
Add: Freight In 1. Merchandise Available for Sale: P999,281
Gross Purchases 2. Cost of Goods Sold: P723,547
Less: Purchase Returns and Allowances
Case 1 Case 2 Case 3 Case 4
Purchase Discounts Merchandise 70,950 20592 54075 140,833
Cost of Goods Purchased or Net Purchases Inventory
Beginning
The following balances are shown in the general Purchases 178,451 50,555 168,420 250,420
Purchase Return 21,947 8,381 14,805 12,498
ledger: and Allowances
Purchase 8,440 1,222 5,297 11,290
Purchases P154,322 Discount
Freight In 25,625 5895 6,050 47,656
Freight In 8,702 Merchandise 244,639 67,439 208,443 415,121
Freight Out 10,995 Available for sale
Purchase Returns and Allowances 32,106 Merchandise 55,267 35,994 42,756 129,577
Inventory Ending
Purchase Discounts 25,700 COGS 189,372 31,445 165,687 285,544
Sales 213,340
Sales Returns and Allowances 84,291 September October
Sales Discounts 10,600 Merchandise Inventory 125,790 210,400
Merchandise Inventory, beginning 100,750 Beginning
Purchases 978, 543 845,824
Merchandise Inventory, end 82,362
Freight In 12,575 15,300
Depreciation Expense 90,540 Purchase Return and 5,500 7,250
Allowances
Cost of Goods Sold: P123,606 Purchase Discount 12,750 10, 362
Merchandise Inventory 210,400 178,950
Seatwork no. 1 Ending
Cost of Goods Sold 888,258 874,962
Purchases P95,330
Freight In 3,210
March April May
Freight Out 5,985 Merchandise 80,493
Purchase Returns and Allowances 10,654 Inventory
Purchase Discounts 3,206 Purchases 451,120 315,297 279,335
Sales 143,143 Freight-In 3,225 5,780 2,621
Sales Returns and Allowances 35,842 PRA 12,597 6,309 11,080
Sales Discounts 4,990 PD 20,751 8,195 7,357
Merchandise 92,540 82, 445 54,402
Merchandise Inventory, beginning 77,593 Inventory,
Merchandise Inventory, end 45,400 ending
Other Income 61,206 COGS 408,950 316,668 291,562

Cost of Goods Sold: P116,873

Formulas (prelims) : Gross Profit Computation:
 COST of GOOD SOLD Purchases 154,322
o COGS Is computed as follows: Freight In 8,702
1. Beginning Inventory + Net Purchases = Merchandise Freight Out 10,993
for Sale Purchase Returns and Allowances 32,106
2. Merchandise Available for Sale – Ending Inventory = Purchase Discounts 25,700
Cost of Goods Sold Sales 283,740
o Ending Inventory is computed as follows: Sales Returns and Allowances 64,291
3. Merchandise Available for Sale – Cost of goods sold = Sales Discounts 5,230
Ending Inventory Merchandise Inventory, beginning 100,750
Merchandise Inventory, end 82,362
Depreciation Expense 90,540
Case Ex. Compute for Net sales, COGS, and Gross Profit
 Merch avail for sale – beginning inventory = Net Net Sales: 214,219 (Sales – SRA + SD)
Purchases Cogs: 123,606
 Net purchases + PRA + PD = Gross Purchases Gross Profit: 90,613
 Gross Purchases – Freight In = Purchases **Sales = 92,000 + 4,000
Case Ex.
Purchases P154,322
 Purchase + Freight In = Gross Purchases
Freight In 8,702
 Gross purchases – PRA – PD = Net Purchases
Freight Out 10,995
 Beginning Inventory + Net Purchases = Merch Avail for Purchase Returns and Allowances 32,106
Sale Purchase Discounts 25,700
 Merch avail for sale – Cogs = Ending Inventory Sales 283,740
Case Sales Returns and Allowances 64,291
 Purchases + freight in = gross purchases Sales Discounts 5,230
 Gross purchases – net purchases (merch avail for sale – Merchandise Inventory, beginning 100,750
beginning inventory) – purchase discount = PRA Merchandise Inventory, end 82,362
 Purchase + Freight In = Gross Purchases Depreciation Expense 90,540
 Gross purchases – PRA – NP = Purchase Discount Net Sales: 214, 219 Cost of Goods Sold: 123,606
Gross Profit: 90,613
GROSS PROFIT Seatwork 5
Case 1 Case 2 Case 3 Case 4
Sales 340,000 312,500, 190,500 253,692
Sales 17,000 15,625 9,525 13,297
return and
allowances
Sales (or Gross Sales)
Less: Sales Returns and Allowances Sales 6,800 6,250 3,810 6,050
Sales Discounts Discount
Net Sales Net sales 316,200 290,625 177,165 234,345
Less: COGS Cogs 129,200 118,750 72,390 97,564
Gross Profit Gross 187,000 171,875 104,775 136,781
profit
Gross Profit – represents the merchandising profit of a Seatwork 6
company Sales SRA Net Beg. Net Endi COG Gross
Sales Invty Purcha ng S Profit/(L
o It is not a measure of the overall profitability,
. ses Invty oss)
because operating expenses have not yet .
been deducted. 96,00 4,00 92,00 25,7 117,50 82,5 60,70 31,300
0 0 0 00 0 00 0
150,8 10,2 140,6 42,1 180,63 49,5 173,2 (32,571)
73 32 41 05 7 30 12
267,3 81,5 185,7 90,7 126,80 71,9 145,5 40,182
20 50 70 43 0 55 88
#8 = NP – EI – COGS
 Mark-up – amount added by a seller to the cost of goods
to cover expenses and profit; used in fixing or determining Mark-Up: COGS Computation
the selling price. Example: Compute for the Cost of Goods Sold
o It is the difference between the cost and selling Sales Company’s COGS
price, computed as a percentage (%) of either Pricing Policy
the cost or the selling price. 345,000 Goods are sold at 230,000
 1. Above Cost Rate 50% above cost
 2. Gross Profit Rate 210,000 Goods are sold at 150,000
40% above cost
1. Above Cost Rate – 2. Gross Profit Rate – 400,000 Goods are sold at 240,000
base is the cost base is the selling a gross profit rate
Sales xxx% price of420%
Less: Cost 100% Sales 100% 560,000 Goods are sold at 420,000
Gross Profit xxx% Less: Cost xxx% a gross profit rate
Gross Profit xxx% of 25%
So if the goods are sold at So if goods are sold at a 500,000 Goods are sold at 350,000
10% above cost, then: gross profit rate of 10% then: a gross profit rate
Sales 110% Sales 100% of 30%
Less Cost: 100% Less: Cost 90%
Gross Profit 10% Gross Profit 10%
COGS Company’s Sales
Example Pricing Policy
Compute for Sales 78,000 Goods are sold at 52,000
* S 100% 225,000 = (180,000/80%) 50% above cost
C 80% 180,000 125,300 Goods are sold at 89,500
40% above cost
COGS Company’s Sales 350,000 Goods are sold at 245,000
Pricing Policy a gross profit rate
180,000 Goods are sold at 216,000 of 30%
20% above cost (180,000x20% + 480,540 Goods are sold at 360,405
COGS) a gross profit rate
630,920 Goods are sold at 946,380 of 25%
50% above cost 752,100 Goods are sold at 676,890
180,000 Goods are sold at 225,000 a gross profit rate
a gross profit rate of 10%
of 20%
630,920 Goods are sold at 1,261,840 ACCOUNTING FOR MANUFACTURING BUSINESS
a gross profit rate  A manufacturing business must process or create the
of 50% products which it offers for sale.
 It employs manpower and machines to convert raw
Seatwork 7 materials into finished products.
Compute for Sales A manufacturing company is divided into 3 departments:
COGS Company’s Pricing Sales 1. Production Department – in charge of manufacturing the
Policy finished goods
57,100 Goods are sold at 62,810 2. Administrative Department – non-production are
10% above cost 3. Sales Department – non-production area
242,300 Goods are sold at 339,220
40% above cost
593,320 Goods are sold at a 741,650
gross profit rate of
20%
407,750 Goods are sold at a 582,500
gross profit rate of
30%
105,800 Goods are sold at a 117,000
gross profit rate of
10%

Stages of Production:
1. Work not started or raw (direct) materials
2. Work started but not completed or work in process
3. Finished worked or finished goods
Manufacturing Costs:
1. Direct Materials – material inputs can be directly and
conveniently traced to each unit of product
2. Direct Labor – employees who physically convert
materials to finished products
3. Manufacturing or Factory Overhead – indirect costs
incurred to produce products
Manufacturing Overhead includes:
1. Indirect Materials – raw materials that are part of the
products, but cannot be easily traced to it
2. Indirect Labor – labor cost that cannot be directly traced to
the production of the products
3. Other Expenses – depreciation, maintenance repairs on
equipment, electricity expenses, insurance on facilities, etc.
EXERCISE: Determine whether the cost is Direct Material,
Direct Labor, or Manufacturing Overhead:
1. Property taxes on machinery - MO
2. Gold bullion used by jewelry manufacturer- DM
3. Wages of assembly line workers who package the product -
DL
4. Salary of plant superintendents - MO
5. Electricity used in factory operations - MO
6. Salary of a nurse in a factory first aid station - MO
7. Cost of disposal of hazardous waste materials in a chemical
plant - MO
8. Depreciation of machinery tools - MO
9. Salary of machine operators in a candy manufacturing - DL
10. Tubing used in manufacturing bicycles – DM
Non Manufacturing Costs - These are costs related to selling
the product and running the business.
1. Selling Costs – all costs to sell the finished products
2. Administrative Costs – include organizational and
executive costs
3. Finance Costs – cost to finance the company (interest
expense)
EXERCISE: Determine whether the cost is Manufacturing or
Nonmanufacturing:
Cryptic Optics Company makes automotive sunshades.
1. Company president’s salary - NM
2. Factory rent - M
3. Cost of reflective material – M
4. Wages of material cutter - M
5. Wages of office receptionist – NM
1. Product Costs – include direct materials, direct labor and
manufacturing overhead; also known as inventoriable costs
(manufacturing costs)
2. Period Costs – include administrative, selling costs and
finance costs; these are recognized as expenses in the period
incurred (nonmanufacturing costs)
EXERCISE: Determine whether the cost is Product Cost or
Period Cost:
1. Direct materials used – Product (DM)
2. Advertising – Period (Distribution)
3. Taxes & Licenses (plant) – Product (MO)
4. Office supplies used – Period (Admin)
5. Payroll for production supervisor – Product (MO)
6. Depreciation – factory building – Product (MO)
7. Insurance on factory workers – Product (MO)
8. Wages – assembly line workers – Product (DL)
9. Factory utilities – Product (MO)
10. Administrative salaries – Period (Admin)
11. Small tools used – Product (MO)
12. Bad debts expense – Period (Admin)
COSTS COMPUTATION
EXERCISE: Benchshoppe Corp. is engaged in manufacturing
clothing and garments.
Compute for the following:
1. Direct materials – 42,000
2. Direct labor – 125,000
3. Manufacturing overhead – 116,750
4. Total manufacturing cost – 283,750
5. Prime cost (DM + DL) – 167,000 SEATWORK NO. 3: Information about Flames Manufacturing
6. Conversion cost (DL + MO) – 241,750 is presented below:
7. Total period cost – 118,00
Gross profit P 264,000
Cost of goods manufactured 612,000
Finished goods, January 1 34,000
Finished goods, December 31 26,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Sales ?

Required: Compute for Sales.

Sales P 884,000
Less: Cost of goods sold
Cost of goods manufactured P 612,000
Add: Finished goods, beginning 34,000
Cost of goods available for sale 646,000
Less: Finished goods, ending (26,000) 620,000
Gross profit P 264,000

SEATWORK 4: On July 2017, Mikmik Incorporated purchased

materials amounting to P25,000 and the cost of goods sold for
SEATWORK NO. 1: On November 2017, Coco Company July was P130,000. Factory overhead was 300% of direct labor
incurred the following costs: Purchases (raw materials) cost. Other information pertaining to Mikmik Incorporated’s
P200,000; direct labor P105,000; and factory overhead inventories and production for July is as follows:
P250,000. Inventories were as follows:
Inventories Beginning Ending
Inventories Beginning Ending Finished Goods P 42,500 P 40,000
Finished goods P 190,000 P 170,000 Work In Process 25,500 17,000
Work in process 130,000 120,000 Materials 14,000 9,500
Raw materials 460,000 620,000
Required:
Compute for the following: a. Prepare a schedule of cost of goods manufactured.
1. Total manufacturing cost for the month of November. – b. Continue the schedule until cost of goods sold.
395,000 c. Compute for the prime cost charged to work in process.
2. The cost of goods manufactured for the month of November. d. Compute for the conversion cost charged to work in process
– 405,000
3. The cost of goods sold for the month of November. – ANSWER:
425,000
Direct materials, beginning P 14,000
SEATWORK NO. 2: Information about Hawhaw Company is Add: Net purchases 25,000
presented below: Cost of DM available for use 39,000
Beginning, Finished goods inventory P 800,000 Less: Direct materials, ending (9,500)
Cost of goods manufactured 2,500,000 Direct materials used 29,500
Sales 3,500,000 Direct labor 100% 22,375
Gross profit on sales 35% Manufacturing overhead 300% 67,125
Finished goods inventory, ending ? Manufacturing costs 119,000
Add: Work in process, beginning 25,500
Required: Compute for the ending finished goods inventory. Cost of goods put into process 144,500
ANSWER: Less: Work in process, ending (17,000)
Cost of goods manufactured P 2,500,000 Cost of goods manufactured P 127,500
Add: Finished goods, beginning 800,000
Cost of goods available for sale 3,300,000
Less: Finished goods, ending (1,025,000)
Cost of goods sold P 2,275,000
ANSWER: ANSWER:

Cost of goods manufactured 127,500 Manufacturing costs P 595,500

Add: Finished goods inventory, beginning 42,500 Add: Work in process, beginning 41,100
Cost of goods available for sale 170,000 Cost of goods put into process 636,600
Less: Finished goods inventory, ending (40,000) Less: Work in process, ending (18,500)
Cost of goods sold 130,000 Cost of goods manufactured P 618,100

ANSWER: ANSWER:

Direct materials used P 29,500 Cost of goods manufactured P 618,100

Direct labor 22,375 Add: Finished goods, beginning 29,500
Prime cost P 51,875 Cost of goods available for sale 647,600
Less: Finished goods, ending (15,500)
ANSWER: Cost of goods sold P 632,100

Direct labor P 22,375

Manufacturing overhead 67,125
Conversion costs P 89,500

SEATWORK 5: The following information is available for the

Norte Company for the month of August:

Inventories Beginning Ending

Raw materials P 18,500 P 12,500
Work in process 41,100 18,500
Finished goods 29,500 15,500

Raw materials purchases 220,000

Indirect labor 21,200
Factory supplies used 1,000

Other expenses:
Depreciation – Factory equipment 10,300
Utilities – Factory 5,000
Insurance – Office 25,500
Office supplies expense 1,900
Insurance – Factory 10,000
Depreciation – Office equipment 5,000
Repair/Maintenance – Factory 7,000
Utilities – Sales 1,500

Required:
a. Prepare a schedule of manufacturing costs, cost of
goods manufactured, cost of goods sold.

ANSWER:

Direct materials, beginning P 18,500

Add: Net purchases 220,000
Cost of DM available for use 238,500
Less: Direct materials, ending (12,500)
Direct materials used 226,000
Direct labor 315,000
Manufacturing overhead 54,500
Manufacturing costs P 595,500