1.3 INCOMPLETE COST METHODS.

It is said that there is an Incomplete Cost Method when through the

accounting, it is not possible to determine the unit cost correctly,
the company is focusing on using a series of cumulative accounts of the
cost elements, that require, at the end of the period or fiscal year, the counting
inventory physical, both in materials and finished products, as well as
manufacturing in process.

The industrial companies that use the Incomplete Cost method are
because they are unaware of the importance that comes with determining the Cost
Unitary, or rather, because in their ignorance they believe that the Total Cost results
costly for the business and trying to save pennies, they neglect the dollars.

When the Incomplete Cost Method is used, it does not exist for the
materials nor for finished and in-process products, the System of
Constant Perpetual Inventories, which is essential for a Method of
Complete Costs.

In the Incomplete Cost method, the data Production Cost is obtained from
global form for a determined period, not knowing each unit
produced, especially when it is of different types and classes.
INCOMPLETE COST METHOD

It is said that there exists a method of incomplete costs when through the respective accounting
it is not possible to accurately determine the unit cost, the company must employ a
series of cumulative accounts of the cost elements that require at the end of the period the
physical stock count of existence, both of materials, finished production, and production in progress
processes. The industrial companies that use incomplete cost methods do so because
they are unaware of the importance of determining the unit cost.

When that method is used, it does not exist for materials, nor for finished products and in
processes in perpetual inventory systems which are essential for the cost method
complete. In this method, the production cost is obtained globally for a period
determined without knowing the cost corresponding to each unit produced.

EXAMPLES OF THE INCOMPLETE COST METHOD

The following will present an example of the incomplete cost methods offered by Cristóbal del Río:

As of December 31, the books showed the balances that appear in the trial balance of the sheet.
work, which was prepared to proceed with the planning of the adjustment entries, production costs,
cost of goods sold, and profits and losses; the balance has the following balances:

Box 10,000.00

Customers 55,000.00
Debtors 4,000.00

Inventory of materials 23,000.00

Work in process inventory 15,500.00

Finished production inventory 37,800.00

Machinery 75,000.00

Laboratory equipment 12,000.00

Tools 4,700.00

Delivery team 40,000.00

Office equipment 7,500.00

Purchase of materials 240,000.00

Freight and expenses on purchase 17,000.00

Direct labor 97,000.00

Indirect production costs 57,900.00

Sales expenses 100,000.00

Administrative expenses 28,950.00

Interest payable 2,700.00

Accumulated depreciation of machinery 7,500.00

Estimates for doubtful collections 3,700.00

Accumulated depreciation of laboratory 1,200.00

Accumulated depreciation of distribution 8,000.00

Accumulated depreciation of office 750.00

Accounts payable 20,000.00

Creditors 3,500.00

Social capital 80,000.00

Legal reserve 4,000.00

Retained earnings 20,700.00

Sales 675,500.00

Interest in favor 3,200.00

Total 828,050.00 828,050.00

After reviewing the account balances, the accountant found the following

Adjustment chapters:
1. Some recorded expenditures originating from the indirect production expense account correspond to
a period that exceeds the date of the financial position (balance), as follows:

Unaccrued insurance premiums as of December 31 $900.00

Unearned rent as of December 31 $4,000.00

2. Payment to the workers is made weekly; by December 31, two days had passed since the
the last week that was paid in the following month of January, the salary for those two days was as follows:

Direct labor $2,300.00

$870.00

3. The estimate for bad debts charged to "clients" was deemed necessary to increase it with the
one per thousand on the sales made during the year.

4. The depreciation of investments over a year was decided to be increased as follows (assuming that
the percentages given below are those permitted by the income tax law):

a) Laboratory equipment 10%

Delivery team 20%

c) Machinery 10%

d) Office equipment 10%

As of December 31, the increase in the corresponding accumulations had not been recorded.
The previous percentages apply to the value of the original account, without considering the value of waste.

5. To verify the value of the tools, a physical inventory of them was carried out, and it was totaled with a
an amount of $3,900.00, the difference between this amount and the book balance was approved to be considered
as a regular charge for tool wear.

6. After conducting the physical inventories as of December 31 and properly valuing them, the obtained
following figures:

a) Inventory of materials $29,000.00

b) Work in process inventory $13,000.00

c) Finished goods inventory $28,750.00

The valuation of inventories was carried out as follows:

Inventory of materials at cost.

Inventory of work in progress and finished products, at estimated cost.

7. They must be formulated:

Worksheet.
Production cost and cost of goods sold.
Income statement.
Balance sheet.
Journal book entries resulting from the worksheet, ledger templates with balances of the
trial balance and the record of the journal entries referred to in the point
anterior.
Solution to the exercise

Adjustment entries of the journal

Indirect production costs - 4,900.00

Insurance premiums 900.00

Rent 4,000.00

Prepaid insurance premiums 900.00

Prepaid rents 4,000.00

Correction to the undue application made to indirect production costs of paid insurance and rents
in advance.

Direct labor

Indirect production costs 2,300.00

Wages and indirect salaries 870.00

Wages and salaries payable 3,170.00

Record of salaries and wages earned and unpaid as of December 31

Administration expenses 675.50 (Not deductible for income tax)

Uncollectible accounts

Estimate for doubtful collections 675.50

Increase in estimates for doubtful collections, by one per thousand on the sales made in the
exercise

Indirect production costs 8,700.00

Accumulated depreciation of machinery 7,500.00

Accumulated depreciation of laboratory 1,200.00

Sales expenses 8,000.00

Accumulated distribution depreciation

Administrative expenses 750.00

Accumulated office depreciation

Accumulated depreciation of machinery 7,500.00

Accumulated depreciation of laboratory 1,200.00

Accumulated depreciation of distribution 8,000.00

Accumulated depreciation of office 750.00

Increase due to depreciation of investments over one year, corresponding to the current fiscal year

Indirect production costs 800.00

Tools

Tools 800.00

Adjustment of the amount of tools according to the physical inventory carried out on

End of the exercise

Purchase of materials 17,000.00

Freight and expenses on purchase 17,000.00

Transfer to the first account of freight and expenses related to the purchase of materials

Interests in favor 3,200.00

Financial expenses and products 3,200.00

Transfer from the first account to the second

Financial expenses and products 2,700.00

Interests in favor 2,700.00

Transfer from the second account to the first

Production cost seats

Work in progress 1,500.00

Work in process inventory 1,500.00

Transfer to the work in process account, the amount of the initial work in process inventory

Work in progress 23,000.00

Inventory of materials 23,000.00

Transfer to the first account of the initial inventory of materials

Work in progress 257,000.00

Purchase of materials 257,000.00

Transfer to the first account of net purchases

Inventory of materials 29,000.00

Work in progress 29,000.00

Adjust the production in progress by the final inventory of materials to determine the material used.

Work in progress 99,300.00

Direct labor 99,300.00

Transfer to the first account of the direct earned salaries

Work in progress 63,370.00

Indirect production costs 63,370.00

Transfer to the primary account of the indirect expenses incurred

Work in progress inventory 13,000.00

Work in progress 13,000.00

Adjust the work in process account to determine the cost of finished production.

Seats of the cost of goods sold

Cost of goods sold 37,800.00

Finished goods inventory 37,800.00

Transfer of the initial inventory of finished products to the first account

Cost of goods sold 416,170.00

Work in progress 416,170.00

Transfer of the amount of finished products in the period to the first account

Inventory of finished products 28,750.00

Cost of goods sold 28,750.00

Adjust the second account to determine the cost of goods sold during the period.
Income statements

Sales 675,500.00

Profits and losses 675,500.00

Transfer of sales balance to profit and loss

II

Profit and Loss 563,095.50

Cost of goods sold 425,220.00

Sales expenses 108,000.00

Administrative expenses 29,875.00

Transfer to profit and loss of the debtor income statement accounts

Closing seats

III

Profits and losses

112,404.50

Benefits of exercise

112,404.50