• Learn the nature of a manufacturing concern in

a sole proprietorship form of business so we

can compare this to service and merchandising
concern;
• Familiarize the various statements needed in
manufacturing, such as Statement of Cost of
Goods Manufactured and Cost of Goods Sold
which are the very objectives of these study of
non-cost system.
 Manufacturing Concern
(Non-Cost System)

Trading of Merchandising Concern

Sells Goods

Manufacturing Concern

Processes and
Purchases Converts Raw Sells
Raw Materials into Finished
Materials Finished Goods
Products
 • Manufacturer – buys raw materials
and converts them into finished
products by employing manpower,
machinery, etc., and incurring
expenses. These finished products
are bought by an merchandiser

Merchandiser - these
finished products are
bought by an merchandiser
and sells to customers.
Elements of Manufacturing Cost
1. Direct Materials – refers to the cost of raw
materials which are charged directly and can be
traced to have form part of the finished product.
- first element that enters into the finished
product.
Examples: Lumber and bamboo - for the
manufacturing of tables and chair
• indirect materials – are the amounts that
are relatively small allocation. Examples
are the cost of nails, varnish, wood
glues, etc.
 Elements of Manufacturing Cost
2. Direct Labor – refers to wages paid to
workers who are working directly on
the product.
- second element that enters into the
finished product.
Examples: salaries of carpenters, production
supervisors, delivery truck drivers and quality control
inspectors
• indirect labor – the nature of their works cannot
be charged to a particular product.
Examples: salaries of plant supervisors, foremen,
timekeepers, janitors
 Elements of Manufacturing Cost
3. Manufacturing Overhead – refers to all cost
incurred in the manufactured of product
other that than direct materials and direct
labor.
- third and last element of costs that enters
into the finished product.
Examples: indirect materials, indirect labor, factory supplies,
shop light and power, depreciation of factory equipment,
amortization of property insurance and amortization of
intangible assets.
 What is Manufacturing Non-System?

• NON- COST SYSTEM – a type of accounting

system which does not provide a flow of cost
or manufacturing process in details and
precise measurement.
 Inventories of a Manufacturing
Concern
3 Major Types of Inventories:

1. Finished Goods Inventory

- are completely manufactured or fully
processed goods which are ready for sale.
-( not 100% complete)

• “Finished Goods Inventory, End” - the finished good that are

left unsold and that are on hand at the end of period.
• “Finished Goods Inventory, Beginning” - at the beginning of
the next accounting period.
 Inventories of a Manufacturing
Concern
2. Goods in Process Inventory – are products or
goods where works have been started
already but are not in finished in form yet.
- ( not 100% complete)

• “Goods in Process Inventory , End” – at the end of the

accounting period.
• “Goods in Process Inventory , Beginning” - at the
beginning of the next accounting period.
 Inventories of a Manufacturing
Concern
3. Raw Materials Inventory – cost of raw
materials that are purchased but were not
issued to production and are on hand.

• “Raw Materials Inventory , End” – at the end of the

accounting period.
• “Raw Materials Inventory , Beginning” - at the
beginning of the next accounting period.
 Voucher System
- A form of an internal control over cash
disbursement whereby all payments are made
by checks except for small expenses where
payment is made out of petty cash fund.

- Prepared with attached invoices or supporting

documents
• Voucher Register – where purchases of raw
materials and supplies , acquisition of fixed
assets, payroll and other transactions with
require cash payments are recorded in this
book. Which takes place of a “Purchase Book”.
- the entry in the voucher register requires all
credit to this “Vouchers Payable” account so that there is
always immediate recognition of a liability.

• Check Register – recorded in this book are the checks

are issued for payment which takes place of the “ Cash
Disbursement”.
- all payments made are debited to “Vouchers
Payable” account to close the vouchers payable set-up in
the Voucher Register
 RECORDING BASIC MANUFACTURING
TRANSACTIONS
(VOUCHER SYSTEM)
A – PURCHASE OF RAW MATERIALS AND FACTORY SUPPLIES

1. To record cost of raw materials purchased.

Purchases – Raw Materials P xx
Vouchers Payable P xx

2. To record cost of defective raw materials returned.

Vouchers Payable P xx
Purchase Returns & Allowances P xx

3. To record cost of freight and handling of raw materials incurred.

Freight In P xx
Vouchers Payable P xx
4. To record payment of freight and handling.

Vouchers Payable P xx
Cash in Bank P xx

5. To record indirect materials and factories supplies

(Expense Method) purchased.

Indirect Materials/ Factory P xx

Supplies Expense xx
Vouchers Payable P xx
B. FACTORY PAYROLL ( Direct and Indirect Labor)

1. To record payroll for factory workers/ supervisors/ foremen, etc.

Direct Labor P xx
Indirect Labor xx
Withholding Tax Payable P xx
SSS Premium Payable xx
Philhealth Premium Payable xx
Vouchers Payable xx

2. To record upon payment of payroll:

Vouchers Payable P xx
Cash in Bank P xx
3. The Employer’s share of SSS/EC Philhealth Premium for factory
workers is charged to factory over head by the following pro-forma journal
entry.
Factory Overhead- SSS/EC P xx
SSS Premium Payable P xx
Philhealth Premium Payable xx

4. Unpaid Factory Payroll is set-up by the following pro-forma journal

entry.

Direct Labor P xx
Indirect Labor xx
Accrued Payroll P xx
 C. OTHER MANUFACTURING
EXPENSES (Proforma Entry)

To record amortization Intangible Asset.

Amortization Intangible Assets P xx
Intangible Assets P xx
To record depreciation of factory building.
Depreciation - Factory Building P xx
Accumulated Depreciation P xx
 THE MANUFACTURING
STATEMENTS
• Statement of Cost Goods Manufactured
– a scheduled prepared to supplements the Income
Statement of manufacturing concern which summarizes all
the cost elements of the goods being produced during the
period.

- a term used in managerial accounting that refers

to a schedule or statement that shows the total
production cost for a company during a specific period of
time.
 THE MANUFACTURING
STATEMENTS
• Statement of Cost Goods Manufactured and Sold
- the body of the income statements itself.
 THE MANUFACTURING
STATEMENTS
• Statement of Comprehensive Income (Income
Statement )
– it is basically similar to income statement
except in the cost of sales section.
• Statement of Financial Position (Balance Sheet ) – in
manufacturing firm of concept,
there are 3 major types of inventories:
• Finished Goods
• Work in Process
• Raw Materials
 Sarangani Woodcraft
Trial Balance
January 31, 20B

Debit Credit

Cash in Bank P380,000.-

Account Receivable 75000.-

Finished Goods Inventory, Jan. 1 85000.-

Work in Process Inventory, Jan. 1 60000.-

Raw Materials Inventory, Jan. 1 20000.-

Factory Equipment 850000.-

Acc. Depreciation-Factory Eqpt. P85,000.-

Office Equipment 260000.-

Acc. Dep'n.-office Equipment 52000.-

Patent 150000.-

Vouchers Payable 180,000.-

C. Obeso, Capital 1413000.-

Sales 350000.-

Purchases- Raw Materials 90,000.-

Freight-in 5,000.-

Direct Labor 40000.-

Indirect Materials 15000.-

Indirect Labor 18000.-

Office Salaries 20000.-

Repairs and Maintenance 12000.-

TOTAL P2,080,000.- P2,080,000.-

Additional data for adjustments :

a.) Inventories at the end of the month:

Finished Goods Inventory, Jan. 31 – P 68,000
Work in Process Inventory, Jan. 31 – P 42,000
Raw Materials Inventory, Jan. 31 – P 35,000
b.) The factory and office equipment depreciation for the
month, P 7,000 and P 850 respectively.
c.) Patent is amortized at 20% annually.
d.) Repairs and maintenance is allocated as follows:
Factory – 60%
Office – 40%
Requirement no. 1 - WORKSHEET
 Take Note:
Adjustments on Finished Goods, Work in Process and Raw Materials Inventories are
not shown in the Adjustments column of the worksheets. Under “direct extension
method” these are directly extended to the following columns:

Inventory Items Extended to

a. Finished Goods Inventory, Beginning Debit side of the Income Statement column

b. Finished Goods Inventory, End Credit side of the Income Statement and
Debit side of the Balance Sheet column

c. Work in Process Inventory, Beginning Debit side of Manufacturing or Cost of

Goods Manufactured column

d. Work in Process Inventory, End Credit side of the Manufacturing or Cost

of Goods Manufactured and Debit side of
the Balance Sheet column

e. Raw Materials Inventory, Beginning Debit side of the Manufacturing or Cost of

Goods Manufactured column

f. Raw Materials Inventory, End Credit side of the Manufacturing or Cost of

goods Manufactured and debit side of the
Balance Sheets