Costing of Material &

Labor

2
2-1

Classification of Materials

2-2

Material Management Process

MATERIALS MANAGEMENT PROCESS

1.

PURCHASE OF MATERIAL

2.

STORAGE & ISSUE OF MATERIAL

3.

PURCHASE REQUISITION
PURCHASE ORDER
RECEIPT & INSPECTION OF MATERIAL
STOCK LEDGER
BIN CARD
MATERIAL REQUISITION NOTE
MATERIAL RETURNED TO STORES

INVENTORY CONTROL TECHNIQUES

EOQ
SAFETY STOCK

Material Purchase Procedure - Summary

2-4

Materials Requisition Form

Copies of the requisition:

1. RETAINED BY REQUESTING
DEPARTMENT
2.TWO COPIES SENT TO
STORES. STOREKEEPER
MAKES ENTRY IN BIN CARD
3. PASSES ONE COPY TO COST
OFFICE TO CHARGE THE
ISSUES TO PARTICULAR JOB

The materials requisition form

also serves as the source
document for recording material
usage in the accounting
records.

The cost of direct material

to charge to jobs and the cost of
indirect material to charge to
overhead.

Purchase Requisition Form

THREE COPIES MADE

GENERATED BY
PURCHASING DEPTT
Manta Power Boats
STORE KEEPER FOR
EMPLOYEE
STOCK ITEMS
PRODUCTION &
Purchase Requisition
PRODUCTION CONTROL
CONTROL DEPTT
ORDER
Date:
04/05/99
Number:
1001
DEPARTMENT
DELIVERY
DATE REQUESTED
04/06/99
USER DEPARTMENT
FOR
MATERIAL REQD
Name: Carl Bevans
OBTAINED
FROM
Hods
FOR
SPECIAL
Department: Production Material Stores
BILLS OF MATERIAL
MATERIAL
PREPARED
FROM
PLANTS MANAGERS OR
ENGINEERING
OR
WORK ENGINEERS
Quantity
Description
PLANNING
DEPARTMENT
110 gal.

An authorized person
from the production
department initiates
a
purchase
of
materials
by
completing
a
purchase requisition
form.

Polyester Resin Catalogue No. (92)

Signature:

COMPREHENSIVE LIST OF
MATERIALS
WITH
SPECIFICATIONS, MATERIAL
CODES & QUANTITY OF
EACH MATERIAL REQD FOR
PARTICULAR JOB, PROCESS
OR PRODUCTION UNIT

Will E. Delite

Purchase Order
A purchase order is used to order materials.
Legal
contract

Manta Power Boats

Purchase Order

Usually sent
through established
sources of supply
SINGLE TENDER
OPEN TENDER
GLOBAL TENDER
COMPARITIVE
ST
PREPARED
FOR
QUOTES RECVD.
LOWEST
PRICE
GETS ORDER AFTER
EVALUATION OF
SUPPLIER LIKE
PRICE QUOTED
DELIVERY TERM
QTY DISCOUNT
PAYMT TERM
DELIVERY MODE
PAST RECORD
GOODWILL
FINCL ANALYSIS

PO #:

Vendor:

Pit man Sales Company

Address:

8650 SW 132 St reet

Miami, FL 33156

Phone:

305- 256- 9558

Purchase Requisition #:

1001

06059702
Order Date: 05/ 06/ 99

SERIALLY NUMBERED
07/ 06/ 99
Delivery
Date: CONTROL
TO PROVIDE
OVER THEIR ISSUANCE
Department: Prod. Mat . St ores
Unit

Quantity

110 gal.

Total

SIX COPIES
PREPARED
Description
Cost
Cost
1.SUPPLIER
Polyest
er Resin TO PLACE ORDER 6. 00
660. 00
2.A/CG DEPT (TO SET UP FILE)
3.A/C PAYABLE (FUTURE PAYMT)
4.RECVG DEPT (CHECKING DELIVERY)
5.PURCHSG DEPT (TO FILE OF ALL
PURCHASE ORDERS ISSUED)
6.DEPT ORIGINATING PURCHASE
REQUISITION

Signature: Bob Smit h

RECEIVING REPORT
ALSO CALLED GOODS RECEIVED NOTE (GRN)
Prepared when the ordered materials are received.

FORM BASIS
OF ENTRY
TO STORES
LEDGER

Record additions to the Materials Inventory account.

REPORT
PREPARED &
INSPECTION
DONE BY
RECEIVING DEPTT

Manta Power Boats

Receiving Report
Vendor:

Pit man Sales Company

06059702 Date Rec:

07/ 06/ 99
SIX COPIES PREPARED
1.RECECEIVING SECTION
Quantity
Description
2.PURCHASING
DEPRT (TO INDICATE
WAS RECEIVED)
110 gal.
PolyestORDER
er Resin
3.ACCOUNTING DEPRT (TO BE
MATCHAED AGAINST PURCHASE
ORDER & SUPPLIERS BILL) (JOURNALISE
PURCAHSE & RECORD PAYABLE)
Checked against
4. INSPECTION DEPARTMENT
purchase order by
5. ORIGINATING DEPARTMENT (EMPLOYEE
Receiving
Clerk: Lauren Elsea
Inspection deptt.
ORIGINATING PURCAHSE REQUISITION)
Indicates qty accepted
6. STORES DEPARTMENT

Purchase Order #:

COMPARED
WITH PACKING
SLIP OR DELIVERY
ADVICE GIVEN
BY SUPPLIER OR
BY PURCHASE
ORDER

& qty rejected

INTERNAL CONTROL IN MATERIAL RECEIPT

INSPECTION DEPARTMENT
3 COPIES OF GRN PASSED
DEPARTMENT WHICH

TO

INSPECTION

INSPECTS GOODS
ENTERS ABOUT QUANTITIES ACCEPEPTED & REJECTED

IMPRESSED WITH RUBBER STAMP CALLED INVOICE

STAMP
KEEPS ONE GRN COPY
IF CORRECT ONE COPY OF GRN PASSED ON TO A/C
SECTION FOR PAYMENT
ANOTHER COPY PASSED TO STORES ALONG WITH
GOODS

INTERNAL CONTROL IN MATERIAL RECEIPT

ACCOUNTS DEPARTMENT
RECEIVES GRN FROM INSPECTION DEPRT
RECEIVES INVOICE FROM SUPPLIER
RECEIVES PURCHASE ORDER FROM PURCHASE
DEPRT
GRN CHECKED WITH REF TO PURCHASE ORDER
INVOICE CHECKED WITH PRICED GRN FOR ISSUE
OF PAY ORDER
PAYMENT MADE WITH PAY ORDER
BECOMES PURCHASE COST FOR MATERIAL

IF REJECTED GOODS (INFORMED FROM PURCHASE

DEPT), DEBIT NOTE ON SUPPLIER IS ISSUED IF

PAYMT WAS MADE IN ADVANCE
IF EXCESS QUANTITY RECEIVED, A CREDIT NOTE IS
ISSUED

PRICING RECEIVED MATERIALS

MATERIALS - COST COMPUTATION

UNIT COST x QUANTITY PURCHASED

INDIRECT TAXES

SALES TAX
CUSTOM DUTY
EXCISE DUTY

TRANSFER, STORAGE & DELIVERY CHARGES

DEPENDS ON

WHETHER PAYMENT OF FREIGHT MADE BY VENDOR OR BUYER

WHETHER INVOICE PRICE OF MATERIAL IS F.O.B VENDORS PLANT

IF INCLUDED IN INVOICE IT IS DIRECT MATRL COST

IF EXPENSES INCURRED, TREATED AS PRODUCTION
OVERHEAD
INCOMING TRANSPORTATION CHARGE IS D.MATL COST

CHARGED TO TRANSPORTATION A/C & SUBSEQUENTLY

DISTRIBUTED TO PRODUCTION COST AS & WHEN MATERIALS
ARE ISSUED & USED IN PRODUCTION
SOME TREAT AS INDIRECT EXP

PRICING RECEIVED MATERIALS

MATERIALS - COST COMPUTATION

UNIT COST x QUANTITY PURCHASED

QUANTITY DISOUNT - BY SELLER TO ENCOURAGE BULK PURCHASE

TRADE DISCOUNT-BY SUPPLIER TO RETAILER WHO IS GOING TO

RESELL THE MTERIAL FOR INCREASING SALES

DISCOUNT VARIES ACCORDING TO SIZE OF ORDER

DEDUCTED FROM COST OF DIRECT MATERIAL IF NOT
ADJUSTED IN INVOICE PRICE
SHOWN AFTER TAKING CREDIT OF QTY DISCOUNT
ORDERING COST WILL BE LESS/COST OF CARRYING
INVENTORY MORE

COMPENSATION FOR CARRYING ADDITIONAL INVENTORY

REPACKING INTO CONSUMER PACKS
DEDUCTED FROM THE MATERIAL COST IF NOT ADJUSTD IN INVOICE

CASH DISCOUNT-OFFERED BY SUPPLIER FOR EARLY PAYMENT

WETHER TO AVAIL IS DEPENDENT ON MANAGEMENT POLICY

ITEM OF PURELY FINANCIAL NATURE
SHOULD BE EXCLUDED FROM COST A/C
NOT CONSIDERED AS REDUCTION OF MATERIAL COST/DEPENDS UPON
MANAGEMENT

PRICING RECEIVED MATERIALS

PACKING & CONTAINER CHARGES

CHARGES OF PACKING & NON RETURNABLE CONTAINER

CONTAINERS, IF NOT CHARGED SEPERATELY, ARE IN BUILT IN INVOICE

PRICE & HENCE NEED NO ADJUSTMT. NO A/CG ENTRY PASSED

IF SUPPLIER CHRAGES FOR CONTAINERS SEPEARTELY, TREATMENT

VARIES AS PER SITUATION

NON RETURNABLE CONTAINERS

COST OF NON RETURNABLE CONTAINER ADDED TO PURCHASE PRICE OF

MATERIAL

AMOUNT REALIZED ON SALE OF SUCH CONTAINERS TREATED AS OTHER

INCOME. REDUCES FACTORY OVERHEADS TO THAT EXTENT

RETURNABLE CONTAINERS

RS 10 CHRAGED FOR CONTAINER

RS 8 REFUNDABLE ON RETURN
OF CONTAINER
RS 2 SHOULD BE ADDED TO
ARRIVE AT MATERIAL

COST OF RETURNABLE CONTAINERS

NOT INCLUDED IN MATERIAL COST

DIFF BETWEEN THE CHARGE FOR RETURNABLE CONTAINERS & THE AMT
REFUNDED WHEN CONTAINER IS RETURNED, SHOULD BE ADDED TO
ARRIVE AT MATERIAL COST

PRICING RECEIVED MATERIALS

INCIDENTAL EXP-TRANSPORT & STORAGE, TRANSIT INSURANCE,

PORT CLEARANCE CHARGES IN CASE OF IMPORTED MATERIAL
MODVAT: (MODIFIED VALUE ADDED TAX)

ALLOWS RELIEF TO MANUFACTURER OF A DUTIABLE PRODUCT ON THE

DUTY ELEMENT BORNE BY HIM IN RESPECT OF RAW MATL USED
ENTITLES MANUFACTURER TO TAKE INSTANT CREDIT OF CENTRAL EXCISE
DUTY PAID ON INPUTS
SCHEME DOES NOT COVER SOME SPECIFIED ITEMS
IF ANY ITEM COVER IN MODVAT; EXCISE DUTY PAID ON IT DEDUCTED
FROM INVOICE PRICE

JOINT PURCHASE COST:

MATRL WITH DIFFRT SPECIFICATIONS TO BE ISSUED INDIVIDUALLY

SHOWN AS A LOT IN INVOICE & A SINGLE AMT IS SHOWN AGAINST THE LOT
AS PRICE
CURRENT MARKT PRICE FOR EACH TYPE OF MATRL ASCERTAINED
JOINT PRICE APPORTIONED TO VARIOUS SPECIFICATIONS OF MATRL IN
THE RATIO OF MARKT PRICE
IF MKT PRICE NOT AVAILBALE, JOINT PRICE APPORTIONED ON BASIS OF
SOME TECHNICAL ESTIMATE

E.G TRANSPORT & STORAGE CHARGES ON BASIS OF WEIGHT OR VOLUME OF

EACH CONSIGNMENT
TRANSIT INSURANCE ON BASIS OF VOLUME OF EACH CONSIGNMENT

STORING & ISSUANCE OF Materials

IMPORTANT STEP IN MATL CONTROL SYSTEM

HOW TO FIND OUT MATERIAL AV. FOR ISSUE

CHEMICAL A

PURCHASES
3000 KG
LESS: SHORTAGE (ABNORMAL) BREAKAGE 200
ACTUAL RECEIPT AT STORES
2800
LESS: NORMAL DETORAITION (5% PROV)
140
NET QUANTITY AV FOR ISSUE
2660

PRICING RECEIVED MATERIALS

EXAMPLE
PARTICULARS

AMT (Rs)

CPU

RAW MATRL 1200 KG @ Rs 20

TRADE DISCT @ 20%

24,000.00
20.00
(4,800.00)
(4.00)
19,200.00
16.00
CHARGE FOR CONTAINERS (@RS 10 PER DRUM OF 25 KG)

48 DRUMS @ RS 10
480.00
0.40

19,680.00
16.40
SALES TAX (10% ON RAW MATRL COST (19,200) 1,920.00
1.60
(5% ON DRUMS) (5% ON Rs 480)*
24.00
0.02
NET INVOICE VALUE
21,624.00
18.02
TOTAL FREIGHT PAID IS Rs 240
INSURANCE (2.5% ON NET INVOICE(21624)

CREDIT ON RETURN OF CONTAINERS

(@ Rs 8)(8X48)

240.00
540.60
22,404.60
(384.00)

0.20
0.45
18.67
(0.32)

22,020.60

18.35

STORES OVRHD

(5% ON TOTAL PURCHSE COST (22,020.60) 1,101.03

TOTAL COST OF MATRL PURCHASED

23,121.63

0.92

19.27

*Assumed that sales tax benefits not passed to buyer back from Vendor

PRICING OF MATERIAL ISSUED TO PRODUCTION

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

WASTE (NORMAL)

DISCARDED SUBSTANCE HAVING NO VALUE

LOSS ON NORMAL WASTAGE (EXPECTED, UNAVOIDABLE)

NORMALLY ARISES IN PROCESS OR OPERATION

PART OF PRODUCTION COST & AFFECTS C.O.P.

NATURAL
LOSSES: EVAPORATION OF OIL, PAINTS ETC,
SHRINKAGE, NATURAL DETORIATION THEOUGH DUST & RUST,
LOSSES INHERERNT TO BREAKING BULK AS IN CASE OF COAL,
ABSORBTION OF MOISTURE AS IN THE CASE OF LIME
WHEN EXACT MEASUREMENT NOT POSSIBLE -TRANSFORMER
OIL VOL CHANGES DUE TO RISE OR FALL IN TEMPERATURE

UNIT OF PURCHASE & UNIT OF ISSUE MAY

DIFFER: STEEL PLATES PURCHASED BY
WEIGHT ISSUED BY NUMBER

PRICING OF MATERIAL ISSUED TO PRODUCTION

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

WASTE (NORMAL)

COST OF NORMAL WASTE UNITS IS BORNE BY GOOD

REMAINING UNITS
CHARGED TO PRODUCTION BY INFLATING THE UNIT PRICE
OF MATERIAL IN SUCH A WAY THAT TOTAL COST IS
RECOVERED
1000 KG OF MATL @ Rs 9 per kg; normal loss 10%. Matl
cost per unit

Rs 9 x 1,000 kg
= Rs 10 per Kg

(1,000 - 10% of 1000) kg

PRICING OF MATERIAL ISSUED TO PRODUCTION

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

WASTE (ABNORMAL)
LOSS ON ABNORMAL WASTAGE (AVOIDABLE)
PILFERAGE, DEFECTIVE STORAGE, CARELESS HANDLING
DEFECTIVE WORKMANSHIP, OBSOLESCENCE DUE TO IRREGULAR
ISSUES
NOT INCLUDED IN COSTING
CONSIDERED AS NON MANUFACTURING LOSS
DIRECTLY TRANSFERRED TO COSTING P/L A/CS

PRICING OF MATERIAL ISSUED TO PRODUCTION

FOLLOWING RELATE TO IMPORT OF SEALING RING BY ABC

SEALING RING 1000 PIECES @ $ 2
CUSTOM DUTY PAID 100% ON NVOICE VALUE (CONVERTED
TO INDIAN CURRENCY @ RS 17.20 PER $)
CLEARING CHARGE RS 1800 FOR ENTIRE CONSIGNMENT
FREIGHT CHARGES RS 1400 FOR TRANSPORTING FROM
BOMBAY PORT TO FACTORY PREMISES
ON INSPECTION IT WAS FOUND THAT 100 PIECES OF ABOVE
MATERIAL WERE BROKEN
THERE IS NO SCRAP VALUE FOR REJECTED PART
NO REFUND FOR BROKEN MATERIAL ADMISSIBLE
MANAGEMENT DECIDES TO TRAT 60 PIECES AS NORMAL LOSS
AND REST 40 PIECES AS ABNORMAL LOSS
ENTIRE QUANTITY OF 900 PIECES ISSUED FOR PRODUCTION

CALCULATE

TOTAL COST OF MATERIAL (assume that normal loss is adjusted first)

UNIT COST OF MATERIAL ISSUED TO PRODUCTION
HOW 100M PIECES REJECTED IN INSPECTION WILL BE TREATED IN COST

PRICING OF MATERIAL ISSUED TO PRODUCTION

TOTAL COST OF MATERIAL

TOTAL COST

SEALING RING 1000 NO. @ RS 34.40

(CONVERSION RATE 1 $ - RS 17.20)
CUSTOM DUTY ( 100% OF INVOICE VALUE)
CLEARING CHARGES AT PORT
FREIGHT CHARGES PORT TO FACTORY
TOTAL

34400
34400
1800
1400
72000

UNIT COST OF MATERIAL ISSUED TO PRODUCTION

MATERIAL TO BE ISSUED AT INFLATED COST TO COVER NORMAL
LOSSES
HENCE UNIT COST OF MATERIAL
=
TOTAL COST
(QTY PURCHASED NORMAL LOSS)
=
RS 72000
(1000 60) NUMBER
=
RS 76.59574 PER PIECE
ABNORMAL LOSS ON 40 UNITS = 76.59574 X 40 = RS 3063.83 CHARGED
TO COSTING P/L A/C
CROSS CHECKING ( RECONCILIATION)

900 UNITS TO PRODUCTION @ RS 76.59574

ABNORMAL LOSS CHARGED TO COSTING P/L A/C
TOTAL

=
=
=

68936.17
3063.83
72000.00

STORAGE & ISSUING LOSSES

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

SCRAP
DISCRADED MATERIAL HAVING SOME VALUE

IF ITS VALUE IS NEGLIGIBLE

RESULTS FROM PROCESSING OF MATERIALS, DEFECTIVE &

BROKEN PARTS, OBSOLETE PARTS
GOOD UNIT BEAR COST OF SCRAP
ITS SALE IS TREATED AS OTHER INCOME IN P/L A/C

IF ITS VALUE IS SIGNIFICANT & IDENTIFIABLE WITH JOB

COST OF SCRAP OR ITS SALE VALUE TRANSFD TO SCRAP A/C

SCRAP A/C
DR
TO JOB A/C
CASH A/C
DR
TO SCRAP A/C

STORAGE & ISSUING LOSSES

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

SCRAP
IF ITS VALUE IS SIGNIFICANT BUT NOT IDENTIFIABLE
WITH JOB

CREDITED TO MANUFACTURING OVERHEAD A/C

THIS REDUCES COST OF MATERIAL OR FACTORY OVERHEAD TO
THE EXTENT OF SALE PROCEEDS OF SCRAP
SCRAP A/C
DR
TO MANUFACTURING OVERHEAD A/C
CASH A/C
DR
TO SCRAP A/C

STORAGE & ISSUING LOSSES

WASTE, SCRAP, SPOILAGE & DEFECTIVE WORK

SPOILAGE
IF NORMAL & INHERENT IN PROCESS OR OPEARTION
COST ABSORBED BY CHARGING EITHER TO SPECIFIC
PRODUCTION ORDER OR TO PRODUCT OVERHEAD
IF ABNORMAL
CHARGED TO COSTING P/L A/C
IF SPOILT UNITS REUSED AS RAW MATL IN SAME
PROCESS, NO SEPARATE A/CG TREATMENT REQD
IF SPOILAGE USED FOR ANY OTHER PROCESS/JOB
PROPER CREDIT GIVEN TO RELAVNT PROCESS/JOB
A/C

ATTRIBUTES OF LABOUR COST

LABOUR

DIRECT LABOUR
IDENTIFIED WITH PARTICULAR JOB OR
PROCESS
CHARGED DIRECTLY TO PRODUCT
Debited to WIP

INDIRECT LABOUR
OTHER THAN DIRECT LABOUR
CHARGED TO FACTORY OVHEAD
EQUALLY SUPPORT PRODUCTION ACTIVITIES

COST OF LABOUR
MONETARY BENEFIT (PAYABLE IMMEDIATELY)
WAGES
DONE BY
(HOURLY, DAILY, PIECE WORK BASIS)
LABOUR
SLARIES
COST A/CG
(FIXED PAYMT MADE REGULARLY)
DEPARTMT
D.A. & OTHER ALLOWNACES
PRODUCTION INCENETIVES
BONUS
MONETORY BENEFIT (PAYABLE IN FUTURE)
EPF
DONE BY
PAYROLL
GRATUITY
DEPARTMT
PROFIT LINKED BONUS

COST OF LABOUR
NON MONETARY BENEFIT (FRINGE BENEFITS)
FREE/SUBSIDISED FOOD

FREE MEDICAL/HOSPITAL FACILITY

FREE/SUBSIDISED EDUCATION TO CHILDRENS

FREE/ SUBSIDISED HOUSING

LABOUR

TRATMENT

IDLE TIME
OVER TIME

COSTS

REQUIRING

SPECIAL

LABOUR COST REQUIRING

SP. TREATMENT
IDLE TIME

NORMAL

TEA & LUNCH BREAK

MACHINE OR JOB SETTING TIME
TRAVELLING TIME FROM ONE DEPTT TO OTHER
ELAPASE OF TIME BETWEEN FINISHING ONE JOB &
STARTING OTHER

ABNORMAL

STRIKES
LOCKOUTS
FIRE, FLOOD
POWER FAILURE
BREAK DOWN OF MACHINE
BOTTLENECK IN PRODUCTION

LABOUR COST REQUIRING

SP. TREATMENT
IDLE TIME

IF NORMAL

BOOKED TO OVERHEADS TO ATTRACT MGT ATTENTION BY

ABSORBTION RATE
WIP A/C
Dr
FACTORY OVERHEADS A/C
Dr
TO WAGES ACCRUED A/C

IF ABNORMAL

ITS PAYMENT IS NOT RECORDED AS COST OF PRODUCTION

CHARGED DIRECTLY TO COSTING P/L A/C
MANAGEMENT SHOULD ANALYSE
CONTROLLABLE & UNCONTROLLABLE IDLE TIME
IDLE TIME PAID FOR BUT NOT UTILISED IN PRODUCTION
WHAT FACTORS ARE CAUSING IDLE TIME ?
PERIODICAL IDLE TIME REPORT SHOULD BE PREAPARED

LABOUR COST REQUIRING

SP. TREATMENT
IDLE TIME REPORT PROFORMA
PRODUCTION SHOP
HOURS PLANNED_________HOURS WORKED________
HOURS LOST_____________
BREAKDOWN
NO MATERIALS
NO TOOLS
TOOL SETTING
REPAIRS

CAUSES FOR IDLE TIME

POWER FAILURE
NO WORK
SET UP TIME
CHANGE OVER
INEFFICIENCY

LABOUR COST REQUIRING

SP. TREATMENT
OVER TIME

WORK DONE BEYOND NORMAL HRS

WORKERS PAID AT HIGHER RATES THAN NORMAL

AUTHORISATION

ATTENDENCE CARD
TIME TICKET REPORT OF O.T. WORKER
AUTHORISATION BY E.D. OF DEPARTMENT

CAUSES

SCHEDULING MORE PRODUCTION

RUSH ORDERS

LABOUR COST REQUIRING

SP. TREATMENT
OVER TIME

CAUSES

SCHEDULING MORE PRODUCTION

CUSTOMARILY CHARGED TO PRODUCTION
OT COLLECTED SEPERATELY UNDER A SEPARATE STANDING
ORDER NO.
DISTRIBUTED TO ALL ORDERS DURING THAT PARTICULAR
PERIOD
= OT TO FACTORY WORKS CHARGED TO FO A/C
= OT TO OFFICE STAFF TO ADMINISTRATIVE OVERHEAD
= OT TO SALES FORCE TO SELLING OVERHEAD
WIP A/C
FACTORY OVERHEADS CONTROL A/C
TO GENERAL LEDGER CONTROL A/C

DR
DR

LABOUR COST REQUIRING

SP. TREATMENT
OVER TIME

CAUSES

RUSH ORDERS
SAMPLE ORDERS PALCED ON SATURDAY AFTERNOON TO
BE DELIVERED ON MONDAY
OT NECESSITATED WITH ONE PARTICULAR ORDER
THAT ORDER SHOULD BE LOGICALLY CHARGED WITH FULL
LABOUR COST
NO OTHER ORDER RECEIVES BENEFIT OF OT WORKING
THUS NO PART OF OT CHARGED TO ANY OTHER JOB
WIP A/C
DR
TO GENERAL LEDGER ADJUTMENT A/C

LABOUR COST REQUIRING

SP. TREATMENT
OVER TIME

TREATMENT

AS PART OF DIRECT LABOUR COST

OT DIRECTLY ADDED TO JOB/PRODUCT
DISTORTS DIRECT LABOUR COST
WHEN SIMILAR JOBS ARE COMPARED SOME INCUR OT & SOME
DO NOT

AS PART OF FACTORY OVERHEADS

OT PRORATED EQUALLY FOR ALL WORKS DONE DURING
GIVEN PERIOD

DEBITED TO P/L A/C

SOME OPINE THAT OT IS NOT PART OF COP
COLLECTED SEPERATELY & DEBITED TO P/L A/C