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    Cost Accounting CHP 2 5 (1)

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    11 views30 pages

    Cost Accounting CHP 2 5

    Uploaded by

    Krizah Marie Caballero

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    ee) (IDNR c= sccontae tes ony ar it wl acta overhead to Work in Proeas, Senet eptember a lowe: = gr at ee ee moe mage Pe Menara 22000 36000 ne Boe st = ie ee = ue eee cee (o Ateda over ea. ty enn at ei fmt ier (@ Ueartiag eit (@ Althe eal, he workin pees account had P2,000 of mate. ‘a, Peo ol dene, and P3000 cf factory overhead charged ig Sam Pan000 Iadretao ‘5000 Dept 190% ances 2000 Medio 13000 (Materials and supplies purchased on account were P65,000. apie hing eee cent nin: HH ‘Materials issued to a Cree ante of onus pape i t : é | Sie tne a Chapter 2 Purchasing Materials Chapter 1 deal with the boi procedure of eh rd et the three clement of manafoctring ets nat mari, ed Imanafocturing overhead relate o foc ther The guested opr Iiatratons of Jnjen Pinter nin Chapter er nromary fT ths choper and the remelning chap you wil fad ot wher hi ct inguresorinoed. The delled pracdares end dunes requed 1 ‘Senn or purchoung motel il be cased Os Shaper MATERIALS CONTROL In. mansctorng bonnes, the ot ol a mail ina majo at ot {hetotal manufacturing cot of och pradtc Rig eto te Interleetesry no nyt guard spin he bt 0 mi Ise waste snd ase fom ener sch tu aintnaer a xara, Inventors, erases, dteroraton,spolge and ebalesees ot tment, Certain requirments are eben to a cv interal ‘Snir yetem fr materi flows + Materials ofthe desired quality must be avaiable when needed. Correct quantities and types of materials mutt be on hand at the right time for production to proced on schedule ‘Materials must be purchased at tbe moat avorble price. { Materiale must be protected from le o thet {Risks of spoilage and obsolescence mst be minimized, Cant of materials handling end storage must be Kept to « mini s Ty sip the dieuasion on materials in this chapter records are min. {aided manual in pectic, mast companies ards Soed ies in sig tod cooling ven Mallar disused rods eae Organization for Control {Postal is achieved in part through an organizational structure that al ‘ows specialisation atthe same tine that dchons wath Gost ‘ont, and ‘aystem of checks and blancs Te secure th advantages of specialization and knew-how, th functions Biied o mateials cguision and uae are uually seeded We oe lowing departznenie: © Parte Dene tnt en eee quia aia + Tee RE ew bee erie ier fave + ER re worm nrtnte ial De it re acon to oe se ctr oe ee eee sete seed ti pt mens montracens in Inotty tl tlanee Ghat i, eetve interoal conte are provided by ‘aking eich depainent ingore foe Bs MATERIALS PURCHASING PRoceDURES Tecra perhnng marae ge he purcasng geen Tal price by matric ens Seen tine, and a he lvest pie. The purchasing agate eam, [rocirementwrton afte purchnin aah ‘odeermine when an tem ba ceched sea at which shou be reordered, the following factora should be considera: SbO“ld The frequency a which the materi is wed ‘he leneth of time I takes forthe eteal be dave rom tas be placed Thins Leo * The minim level of mateils that should te maintained to nsute tht the company does tot rn ot ef masala Ress Known as the safety sock, For example, the order plat is 20 cos of ink Jenen Pater wanda ‘whave at Teast 160 cane on hand at ll ines. Since 20 cane te tn production each day andi takes Sv dye to verve an order the reo ‘er paint is computed flows "39 cans ally wage) x8 days Grad mo) Ada: eaoty stock Reorder point sates ros tik eda ee ii dan, hn the ow can of ink should arrive at Jenjen Printers ae the inventory ‘eachon tho safety stock level of 100. ven ifthe order ia delayed here Wil sl e 100 nas on hand to met prodstion requirements, Ne Be a Bconomie Order Quantity (20@ == aero qumuty tot ordered varie fom temo er, I thal ost teary intent yaa gta bet pic he Beg inven ence unieerpied production ot advantageous numberof nts 0 onde, ¢ formula ‘Te eperming ht Gea hes been developed 18 compte ay ie he erie fis: x annual ruler Hon oan OGRE 2 annual requirements x cont CeO 0 = Got ft during the ear denen pitas cot fo onder is PIO, te cot Ms Este companyreires 8 000 co Inari eS ee ae Teale oe See wir Ae, wast eeer ote, Gis St, fect, Teta Gowns) Onder) wPis) 7 3 g os e ae 2 8 @ & 3 38 s : #£ 3 & 8 “8 a Se CJ 6.000 238 “Aosume that compan’ production requires 40 ilo of materiale a Aguas ia akan four dye to tecie tte materiale fom he faethe opty attr 0 ln ae 2 cf oo lea ters nach ae, that eee ee ea frat im seveptony a P99, and that the 1s. lace sn order is PISS, Calculate the y AB i Answers: sO els x 4 das £00 los +400 lo = 2,000 on. Belopoox Ts » 2 BOQ 2700500 = 200 Purchase Requisition ‘Once the materials reach the reorder point, the storeroom supervisor Qespistce» purchate requisition questing that raterala be ordered. A. Bros region nement 1) pepe gore. wet Shown on the next page is ent to Uo for the materials, The duplicate copy is retained in the storeroom Plrchage requaitione must be numbered for easy reference. Fee Pane he Berckans Onder Sita Pikpnnce <—_—_——— a ‘stupa issrRucTioNs| Dea Waated | ———— Sto Ve Saat oo [Gatens [aeomt T iii ” Rear Re —————— suet of make bids In choosing the supplier, th purchasing cst ‘myriefaor ouch at dopendtany, quality of materia delivery det bd pre. Afar choosing the supple, the purchasing agent prepares & purchase ‘rder Document 2) as shown in the next page, The purchase ovderane witen authorization to the supplier to ehip the specified material iia ‘purchase order i prepared in five copies to be distributed as flone 1 Suppliers 3. Storercom requested are on order. 4 Recsving Department as an authorization to acept.an incoming shipment. % Purchosing Department (2 copies) for file in unfilled order. premarpcitraal conto procedures require that all purchase ordre be Tracateity At the ead ofeach month, the cost accountant ersies the, ad Ta tan rer either hive ben sono supplies oa on ures that era are used only for authorin Purchase ord ed only for authored Pest Merely » Document he Eevinconon Fa apie os ect Pon: | _—e ——~ RTERIALSLEDOER CARD Number [ou esenelne $E a tan Fe ame Comparing Documents sete ein om pit oe lee ts er em pr See hea Stone aie pa rn pao ag ea Sehr ns dered have ben resived in od condition these are listed only on the invoice. aatemgene Gt press sirrne charge, and ther at ar in cordance with order opeteatons Computations are cree fall 2eumenta are in order the purchae inven, reeving report, and the purchase order age staged and fed ia a sompited purchsen folder Arranged alphabetialy by supple New, 1 check voucher toe ened disbursement voucher lke the one shown in Dicumeat 9 prepared ‘rth supporting Jocuments attache! toe Once approved. the noucher hve the accounting dopartent for acordang Recording the Voucher When the voucher and supporting dacuments each the accountng de- zartzent, the voucher cork sbe-ks all the dacuaeate i they af $00 trip approved and signed, Ths oublecheckng is another pat of aa ef fective internal contol syst In vorifping the account distribution againat the purchase onde, the ‘oucher clerk entoes the purchase inthe voueher reglter, as shown in Document 6. (Vouchers are prenumbered fr eoatel purposes). The pur hse of diwot materials or indiect materials entered as e debit inthe Faw Materials column ad as «crest in the Vouchers Payable column ‘The totl forthe month is the soure of eatey Ain Chapter 1, debiting Materials account [After the enty ix mad inthe voucher register, the voucher i sent to the ash departneat for Bing i the unpaid vouchers Ge | cheat 81 ‘Cash Departmen register. The y ut Shes ce ti friedetndis nna enoved from the UNDAid yo, apares a check (the ane tthy, jp and enters the check sees hk heer aa ad te he cha “pec eves ek ee tiga toucher The wos i den led inthe pon at ‘a fd dts pion te vow. eer turned te = | pid |) Root | tac ootcw | por Cans || Bien | Sat ae 1 | i Flow of Documents ina Materials Purchasing System ee char nh ne ae hows th By of teed smnerl purchasing. The arows show whch parents rere fee ofthe document. The Gowehar indentes hw the ocala ithe pcs ae ilid ad urd popes hase ee ‘The disburvement voucher i then the basa rte preparation ejorea atest record the purchave sad the payment ef ene COMPUTERIZED MATERIALS PURCHASING SYSTEM ‘Online purchasing system for materials allows coapanies to hare upto {ate information ed improves the orgaizains's porchnag proce [Acomputerized purchases oyatm has an inventory Se sppir le fd an ope purchase order Ge in ts memory. Ufon rept of a Pur ‘asesequston the purchasing asent sean the appl eed coomes Soupplr. The computer pepares a purchate ore asd the ata he Sorchase ocr is ded tothe open purchase ode Be When the order arrive, the receiving cet counts the items end enters {tis the ssiving rom terminal (allo indicating whch mater must be etursed, if any). The computer compares the tems ordered (stored in the epea prshaze order Ble) withthe stm recived. prepares the re Caiving report. and update the open purchase oder fe, the inventory fle, and the Supplier fe ‘Acomputzed stem can pronde wnforeation about purchases tothe ‘astous wars of tho system, thus amproving the proves of requisitions, SPECIAL PURCHASING PROCEDURES In addition tothe usual purchasing procedures, special procedures are red to moet the following special eases a ot saris Tossed the protien of ination of mitra sede, the prod sSenuper tay prepare a blo uals when he alee oie et sive The bl of eateries a ter eee on the bg ‘i they wil be ended. a shows in Doument 7 below Pie rah ‘enables the storercom supervisor to check the quantity of materiair® tad to eanure that slScent moter io avable. To wold endy lupe the purchasing agent bay be reared to buy more materials ‘ance. Tee bil of mcrae suey same companies usually conan ee ae nea my et sea terials rssiion 7 Debit and Credit Memorandums Damaged or defective materials are immediately returned £0 the wp. plier. A pote oa the retura in made on the receiving clovk’s copy ofthe purchase order and on the receiving report. The purchasing agent then Prepares a debit wecoraadum. The debie memorandum is notice ta the Fender ats deduction fm the invoice fr the cost of the returned mate Tals, as shown in Document 8 on the next page ay ee ee If the supplier ahips more materiale than were odered and the satr- ths as nat ueded, the purchasing agent sormally authorises Ui Fe {iba However they are reained fo ature uoc andthe materia have Sot been inclded ia the supplisr'sinvoie, the purchasing age pre Balsa eredit memorandum for the addtional cost. The Phase oF. TIER, be amendod fo include the otra materials shipped inatead of ret oranda SUMMARY OF PROCEDURES AND PRINCIPLES {Pec blowing ave the summaried proedares aad principles of purchas- {ng materia 1 Materials must be carefully cotrlled to protet the company’s [age investment in materials and to malatain enough mater fst haad to meet production requirements, Mucins should be purchased in correct quantities, a the Meat tna and atthe moat economical coat tothe company. Purhasing procedures are performed by the purchasing agent rr 4 The purchasing cle consets of the following steps 1" Apurchase requisition is prepared by the #OTer00m supe, visor or the preduction manage + A purchase order is ieved, + When materials are received from the Supple", paymen: gg the bil should be authorized. +The purchase is recorded in the voucher resister. + -Acheck in payment of the invoice is issued and recorded iy the check voucher. 4. All purchasing procedures must reflect the following principe, of internal contra: + Request for purchases must be made only By authorize pereons Purchase orders must be properly approved All materials received must be carefully counted and in spected Payment should be made only upon proper sbproval Purchasing responeiblitics should involve differcnt pee sons, so that the ak of fraud or error is reduced 5. Specat procedures can be used for handling damaged, lost, or defective materials, and for shorcages and overages in shipment 6 Matyofhe pede inthe purchasing ese can be hand lectroically CONTROL PROCEDURES ‘Because inventory represents a major investment toa Grm, adequate con tol is necessary The Intel of raw materials inventory is haved on sched tled production, which isin tura based on sales forecasts. Five contra Procedures are commonly ueed a follows. 1. Order Cycling. Materials are reviewed on a regular cycle, end grders are placed t9 maintain a desired inventory level 2 Minas method. Minimum and maximum inventory levels are determined: Reordering is done when the ramimum level is 3 To-bin method. Ths is used for inexpensive items. When the est bin is empty, an order i placed. The second bin provides ‘overage until the order is received peters ls 4 ABC plan This is used with a wide variety of items be ferent vues, The more expensive ns cee nae Coe review and closer monitoring ‘Aitems most expensive items, ually few on hand Bitome ~ moderately pried items and moderate quantity on hand items ~ inexpensive items, generally hein large quantities, {5 Automatic order system. Aa otdr is auteatcaly paced when the inventory eaches a predetermined lvl Tis aystem works best when used witha computer, MANAGEMENT IMPLICATIONS. Since in most manufacturing Sr the tof atrial Jor par of manufsetaring cor, management cocerad wih the conte of materials and the development of effet te tals purchaving and handing cele Standard or the frequency of ordering rm materials and mot feonomieordcr quantities are tbe dvelaged bythe ana tment The goa! is to keep materals invetones atthe lest Ievel posible, consatene with econ oder antes, the ready availability of mates and other fasars Core pet find quomtitis of materia most te kept on haa bet with the lease ponible amount of finds invested is lavatories ‘To achive the above gels, appropriate pocedrea must be de- veloped for crdering. paving for. reowine and storing mater tis Computer sysems hive gresty enhanced cng {od the implementation ofthese procedures, proving insta taneous data aout Inventories and providing Inapentivecon- teal ysters Computer sofware has allowed even small manufacturers to Sse sophisticated inveatory purchasing and control eaters that Ip achieve the goal of having miner, but adequate, quant tow of vena on hand stall time. SS eee ba] fers cnsces-rson Hie vega ar ett ie HART FOR MATERIALS ACQUISITION jury and peo material cals requirements for each atep in the fr quantities tobe debivered the purchasing agent ofthe quantity and kind of materala 4. authorizes the storeroom to deliver materials to a given, Aepurtment _ 2 A dei memorandum oth Veterans Corporation fr ater Mitenals reece today from Veterans Corporation 7 craaterred tothe stocereom and watered sn the Moleral ier 2 Dubsisement Voucher 014 to Veterans Corporation i ips he enous oved onthe fr’ ove a5; fhe to Vetouna Gaporacn forthe amount dv, le, Scour Sn prepare! ad wale Require Recordin general journal form the transactions needing EEE "cord Disbursement Voucher ‘The fellowing ouchers were recorded by Jomig Manufacturing Company daring the month of March 2018. Veucher O01 payable othe Liss Supply Company. The inves mas for 1.380 unite of Material ABT a PLES each, Th reciting pe ipiegtes that 1380 were cect. None wore defecive 1 Wesster 032 payable to Tan Corporation, The invece was for 498 sof Material B19 at PO Gd each and 3900 unite of Mowe Giso at FLOAT each The receiving report indents tat al meters rered were received. However, 250 unit of Matenal Class dimaged in transit and were fturned fo the suppiey & deke iemorandum was prepared « Nouther 099 pyabie to Sy Company The neice was for 2800 unis ef antral B20 at P18 cach The rriving epee ceed aly BADD units were essed debitmecnrandum fa the che stat prepered 4. Voucher 084 payable to Ong Company. The invoice was forthe flowing 800 nt of Matra EBT at D720 cach: 7990 cohen Matra 85 at P30 each 790 units of Mscr Goya HS hand 4200 wuts MacialHaDat 9 90cach The rasa ee {edie tat th units ardered were recive! except ie Meat Gor shacen SOs In allio 20 vcr ‘memorandum was prepared. rere ae Required: Fo ech voucher determine th Soaches determine the amount of th voucher and ‘record it in the voucher register. Foot the columns, " —— Chapter 3 Storing and Issuing Materials —_—_ Internal control procedures for purchosing must be accompanied by appropriate systems for sloring and tstuing materials to coos that te company's investment in inventory is protected. These preceuttoners Imeasures are necessary to avoid damage, waste, theft, pollens eed thaolescence Physical cntrole begin from the time materials are delicered tothe sloreroom, up to time of thet storage and usauance. Wriien controls ‘nthe other hand, include receiving report, recording in the materials ledges tard and continue through the preparation of journal entries to second the fesuance and use STORING MATERIALS. Admission tothe storeroom area isto be restricted tothe employees under the immediate supervision of the storeroom supervisor. The storereom superviscr is responsible for the protection of materials in the storeroor, fond for identification of the materials. Each type of materials assigned ‘umber, indicating the type of materials and its location. Materials are sored in a systematic manner in bins, on racks, o on shelves, Attached to each bio or rack is nbn tag. The bin tog ie an informal record showing the quantities of the materials received. wowed, and on hand at all times, The bin tag is shown in the next page (Document 9) ts Document # —~ aNTAG atera Xo. Lecaton [Reorder iat —Deseription saat] Genny Date z Issued Balance ro 1 EE ISSUANCE OF MATERIALS Materials Requtston rer without & materi No materiale are issued from th Faquistion The moteriale requisition as shown on the next pie GBecument 10) is prepared in duplicate by the department, head os SGpervisoe. The requisition indicates the quantity, material nurby, ekcipton, and job number to which the materials Are to be charged the saeroom supervise nue on the requisition Ost to the stream Upon receipt ofthe materials requisition Be astailsend makes the nesesaey fot ony is Bled ws receipt, andthe second copy sgn ‘leck Materials Ledger Tes Scenes eck computes and reson the cost of the materials isu Pie matcios ledger card, computes the tem aki Sask ante as mn A moter edger ad son i Dean 1. he nt false fe a Sd iy rep ley that ie baie er wk ete lela ent cr edger oe SLOSS ma ac rn ere ee Material Materials Rei ‘After eecordin athe iesuanoe wil be Journal n+ shown on the next page {ypcal entries wil appear inthe mater ‘MATERIALSLEDGER CARD = Reorder Point Reord quisition Journal the requisition in Jed to th cot clerk, who journalies the transaction ‘serials requisition journal 0 that the effect in special journal, the mi Moested in the general ledger cost accounts, The the related materials ledger card, the ‘Document 12} shows how the two vials requisition journal. a ee ib order costing to improve the efficiency of the journaling port’ ‘These use of special journals avoids writing the many long and repet,s. tres involved in issuing and using materials. Internal congea ores ts etd pone dogeed ons employees. Document 12 ‘MATERIALS REQUISITION JOURNAL FOR THE MONTH OF. ‘Overhead ‘na DR 01 hia ‘Job Cost Sheet ‘The cost lek’s next step is to post the information from the requisition to the Materials section ofthe job cost sheet below (Document 10) Only Airoct materials are posted in job cost shest to charge a particular jb Document 19 “Jon cosT SHEET a args Oraaat a sient ae ane cn ts en the departmental overhead anya sheet a shown tat “ ocarment 14 [__ EPARTOIENTAL OvenneaD ANALYSIS SHEET] Materials Internal Control J Mitiiernal control procedures for storing and issuing materiale ob fete! the fllowing principles: ‘Admittance to the storage area should be restricted. Materials ledger cards, covering all recipes and ianues should be maintained Each type of material should be clearly ientifed, stored and carefully protected while in storage Materials should be issued only upon authorization + The accounting system should permit a periodic check ofthe materials ledger against the balance of the Materials account, Different personas should be invelved in storage aad issuance operations. oper written ‘The Bowchart on the next page thows the How of documents related to the storage and tasuance of materials. The arrows indicate where the Information from the materials requisition is entered in the records of he atoreroom and the accounting department 2 esa of Materials a nna oun +f er na Tar Rea sa EE et = eames ce anced ee Oe SPECIAL ISSUING PROCEDURES _aveflective ntroalcntrlnyten for materials issuance shoul nctude Me Dlcwine proedures for tpecal ees ewurned wo Storeroom ses of requiaiioning too may ‘materials or ather reanoae must Be companied by a roturned materials port The ntetared watts {feport town below (Document 10, i popaced ia dopo, Parent urbe fled aut by the department that rigioally areireed ae ‘Gnenalsorby the noreoom taper cr PRINCIPLES OF INTERNAL CONTROL ‘The procedures for string aod issuing materials should elle se wing pamspon cf tetoa cose Adsitane tothe sorage area must be restricted + Mater ldger aris showing all eceipes apd nuances mie "auntained be Each pe of materiale must be cleaely identified, stored as! carey preted while on storage + Materials’ ust be issued only upon proper writs suthoraetion sexpuningeystem should include a periodic check oft serials ledger apunst the balan of the Raw Macrae sate ‘fbn pects must be involved in cheating and iemataier cas | SBE | BA | ‘The materials returned are entered in the bin tag Document 9) im Patenthens under the Quantity Issued column. The aumber of waite ‘eturned is added to the balance. The returned sales report ws press ‘othe storroom clerk, who in tur flows the step Blow 1 Eaters the wit and total cost Gres onthe report. The wait fist isthe same as that used whea the materiale were charged 2 Makes an entry in parenthesis in the Issued section of the ‘materials leer card Document 1), The new quantity and coat ‘see then entered inthe Balance clam ofthe car 2 te |. Sends the returned saterils report tthe cmt clerk, whi, pices the Bo importaat entre a8 flows dace eit atl on Socezenarte nacre ae Be erates won + An entry covering the return in the returned materi, | see ar enon eT re are etiam ones Ste ran ee oe a Materials Returned to Supplier Sometimes, itis necessary to return materials to the supplier after they fre placed in the storersom. A return shipping order authorizing the ‘etur is prepared by the purchasing agent in triplicate together with & debit memorandum which is also prepared in triplicate One copy each o the turn shipping order andthe debit emorandum is kept by the gent. One copy ofthe return shipping order is sent to the fhibing department as an authorization to retuen the materials tothe baller, One. copy of the return shipping order and the debit ‘metorandum is sent to the acount sssounting department for it records. The econ Gtk receives copy ofthe debit memorandum to be used in scoring the return in i Earle ae the materials ledger under the Receives coluun® seomstbogiray a {the ur ia made br the voucher regia adware moe oinnl oni ie correcid by mekiog nett etheole fot Be cet ear he fans kos oes ‘Those eu ofthe month the eatin ia parenthosa ar eta. Thee ‘ale aracecorded by debit tothe Vouchers Payable nesgum 8 to Materils necount inthe voucher register hasbeen cone forthe month where the purchase wot recorded, «nem voucher i ued and rected. Voucher Payable 12 {ited forthe original amount ands alan credited he revined omDouDe: ‘ie Meroe i rodsed ta Materais acount COMPUTERIZED SYSTEM FOR ISSUANCE OF MATERIALS Many companies now use a computer system in recording the issue of ls. In a typical computerized system, the storeroom supervisor rate hues the material number and quantity fom a material requisition, feturned materials report or a return shippioe order into a computer ‘Srongal inte atocetoom. The computer uaeg thia data, together with Goat data stored in its memory, #0 prosess a completed materials, ‘aquisition The computer system also uses the quantity and macerial number to Update the iqventory file for that materal and to determine whether ‘more wnits should be ordered. Por example, i the amouat of material [ssued on the material requisition causes the balance to drop below the reorder point, the computer automatically produces a purchase order to feorder the material A computeriaed system facilitates to update inventory records, simplifies browsing puts ides, and provides ele Summarized Procedures for Storing and Issuing Materials 1, An effective conteol system for storing and issuing materiale soul te adopted bythe company to safeguard it investment 2 Materials om hand must be carefully identified, stored, and recorded by the storeroom stall. Materials are to be issued only ‘upon receipt of materials requisition and recorded on the matorials ledger eard, materials requisition journal and the job cust sheet or departmental overhead analysis sheet Bepeteg nr ta sue a ate Encl nt cel bth te el gee ards ung the loge PLM purtond Recced an gon 0 er. Da er aad tats er nd ening pre HeeLeen epee Poe als Sean Ba a, Hearst ella Serre ree an: Recorded a4 sods ay, Meet Deis kes tow roe mele oe Feet ete te forded on ele say SRL ii at wenn eS ee os Sth en Pero nthe SERRATE PSEC Piao we tse Shane Hee Sy as aken in total of Materials ling eras requien ural afm ruts uray. akan fam tal re teed anal arg aia cla ae Bee la rm he ca srthess of the voucher Femister's Materials Shae 5. At the end of the periad, che balance of the Materials accuse ‘Should qual the teal balance on the materials ledger card MANAGEMENT IMPLICATIONS ‘Bese ofthe bass consepce to be followed by manufacturing companies in orng ad soouing raw matoriale are feiss th the materials, futhenaed employees. ISouanee of materials should be properly authorized For csurate information about materials on hand, appropriate tntres must be recorded in materials records when materials te received and ined + Ailmeteileinoued from the stoeroom and returned tit boult be recorded i the ob cost sects Verfction shout be made monthly to make sure that detailed ecards, ouch asthe materials ledger, agree with the general The needed journals, ledgers, and detailed records relating ‘aw materials thatthe company needs ahould bo determined Appropriate procedures should also be developed to the ‘oupanys organizational strdcture and operation som should be restricted ee ee sonst ns 1 The peston whois renponnible for he protection of the materi in The soreroom, ad for Geatieation ofthe mates te Receiving clerk & Parehasing agent 2 Btoreoom supervisor &. Storeroom cle 2. Thobin te a. is on informal but careflly maintained record showing the (qunnities of the materials rsnived, inned and on hand, by iba name tag used by employees for ideniGeation purposes Cit record af materials requistons G3 Beard showing the vouchers sooued 4, -No materiale may be lasued without a writen document called the a Materials requisition B Materils spued © Material ledger card 4. Receiving report 44 Matevils requisition should indicate the folowing except 2 Quantity Material number © Job number 4, Purchase order number 5, The person who is responsible for recording the requisition in the materials ledger ened is the: Storeroom supervisor Storersom slork Purchasing agent Accounting clerk Chapter 4 Controlling and Costing Materials Inventory To simplify the procedures of using materials ledger card, the prices of materials in the previous two chapters were kept unchanged. This is not usually the case; because prices often vary from one purchase to the next, ‘ond itis impossible to identify the specific purchase from which an issue is made. This chapter will illustrate how to calculate the cost of materials issued, how physical inventories of materials are taken and valued, and how inventory adjustments are recorded. COSTING PROBLEM To illustrate the problem of costing materials inventory, assume that the materials ledger card shows unit prices of materials purchases ranged from P100 to P175. Assume further that 150 units of materials are issued and 25 units are on hand at the end of the month. ‘The problems which have to be resolved are: What would be the value of the 150 units issued? What would be the value of the 25 units on hand? It is important to determine the valuation of these units as this will have an effect on the company's profit or los for the accounting period. If other factors remain the same, the higher the ending inventory valuation, the lower the cost of goods sold resulting in greater profits or smaller losses. On the other hand, the lower the ending inventory valuation, the higher the cost of goods sold, resulting in a smaller profit and greater losses. 137 a I, INVENTORY CosTING METHODS ‘We the nesta tems ar few and specication isntcaion tech identification of ost ears a speci sont stems of venta uth aan ues ites fet hh perlatodet iy med Under a interchangeable, perpetual ivesian este i us trem tenn ial otra be opted ache water fe reed erased. The rary hss of inventory valuation i cog, ‘Sine at pres ary fm soe purchase fo another, an assumption shoul be made shut the Bora conte There are three methods t0 determin, he ent oeding ventory tbe repored These methods areas flloms Firtin fr oot (FTFO) method. Under this method, the fre, ‘Barrls poche (cde areas!) are the Brat materials Ebr ued Toe evenle on hand ave therefore assumed! t be the last co paras. Lest in fir o0t (IFO) method. Und ‘pateals purcased (he most reat be ued. Then the tele ca hand a oe parhased The mong everoge method. ln this method all the costs ae coaaingled and aa serage cot is computed with each new prcase and essed to miele issued and on hand his method, the lst the Brat material to iesumed to be the frst May The beginning blac oo bands 160 units costing P150 each 6150 unite are purchased under Purchase Order 08 at PISS ech, 10 180 unit are issued or we per Requisition 10. 2k 150 ita are purchased on Purchase Order 9 for PIG BR 160 uta are ised fr we oo Requisition 16, 2% 10 unis are etursed othe trerom as noted on Returaed Materials Report 3 These units had been issued on May 10 {or us on Requisition 10. eon ett Marie ‘The following should be noted in the Materials Ledger Card above: "The peice for each issue is individually computed "The toaue of 180 unite on May 10 includes all the 150 units from the beginning inventory (150 units at PISO each) plus 30 of the lunits purchased on May 6 (32 units at PISS each). ‘The issue of 160 units on May 25 iacludes the remaining 120 units from the May 8 purchases (120 units at P1S5 each) plus 40 units purchased on May 21 (40 units at P1S8 each). ‘The 10 excess unite returned to the storeroom on May 25 are priced at P155 because they relate to the issue of May 10 and fare assunied to be part of the group of 20 units. The job finally willbe charged only with the costs that would have been charged, if the correct quantity had been issued on May 10 (180 units at P150 each + 20 unats at PISS each). Of the 120 units on hand on May 15, all except 10 units returned tre priced at the most recent cost, PIS per unit. et Argues in or of he it init out wethod are that it ip gg, ‘eden ny outro FO ge ee ecordkoeping thas Lipo tat tesa phe Bow of goods and tha lave these ait wae leva tecause iin A (he ret etna sian of eplcement coat, (nthe ether band ong arunent aie the iti, ist out meth fs that it deat mh caret capt current sales rovaqat ‘ected hs eth th edn veto 8 Priced at the ae roel cons reg the eat of gods ald tobe priced at the oie fost Tae when th ot seis computed, the cost of goods Chat is deface fon ade revenue dvs wot include the most ret cats Th ar bad sates of et care in period of rising peas? ‘hoe he cof ps ol des Last Ia, Fst Out Metbod Ugg be suze sens fr under the LIPO esd sora bel 1-4 the Materials Ledger cy Mlastration 62 rr ca ito tacts aeoanen PONT ws oonDER QUANTITY fli aoa following shouldbe noted inthe Materials Ledge 7 Ti) under the LIPO Method re Leten: Oud (estes ‘The issue of 180 units on May 10 consiata of the 160 unit ‘purchased on May 6 (180 unita at P138 aah) plus 80 una fom, {he beginning inventry (80 rita at P180 each) Note that the ‘sgues ate recorded in reverse onder. That i, the’ 90 Gta at 160 each i showa rst followed by 180 units at PISS each, The sequence enables ou to compare the FIEO and LIFO methods ‘more easily Ga May 20 the issue of 160 unit consists of the 150 unite purchased on May 21 (150 units at P1S6 each) plu 10 unis from {he beginning inventory (10 unita at PIS0 each). ‘The IO eesea urta return tthe stoeccom on May 25 relate to the issue of May 10 and are assumed wo be par of the 30 units (the oldest) Thus the jb Enally wall be charged only with the costs that would have been charged ifthe corect quantity had {een isued (150 units at PISS each + 20 anita at PISO each) Al tho 120 unison bund on May 25 (0 + 110) are priced atthe ‘arlieat cost, P150 er uns Mote that these unite would poemally Eetrecorded toge!ser as 120 unite a: PISO each. They ace recorded separsaly here t faiutate the comparison of FIO fed LIFO methods ‘The maior argument in favor ofthe latin, Gt out method i that current ots are matched against current revenue, because tbe cot of goods wold a Sentains the mont resent coste Thera, the net income Bgure i a better measure of the current earnings ethod because it uoually Be snr Fgueds However as stated ear, the physicl Sow of goods doea aot have & correspond to the inventory futing method used Moving Average Method ‘Neither the FIEO nor the LIPO method is entisely satisfactory in valuing rnveatories Therefore, the moving average method may be used as & ‘compromise Under ths metho. the units and cost of each new purchase fre added tothe balances already on hand when the purchase is received, find anew average cost per unit is computed. When materials are issued, they are charged out at ths average cost until anather purchase ts received tr return is recorded. when # new average cost per unt js computed. Materials Ledger Card uader the Moving Average Method showing diferent values from FIFO and LIPO methods are shown on the next ase ‘ owaraton 2 at -—— eee sce ta noun guanine a a oe ir as] he Suing ent the Mun edge Card "Te 1s) ns ud ce May 10a priced at P152.50 per uni (te ns pceapetig im the Balance ection on he ling sae) ‘The Lud on Mas 25a priced at PISA per wit (Pig ss8 40 ided 20 wis ‘Te IO ements rtrd tothe storercom on May 25 are pred a PLES he po on May 10. ie 0 ats emusg in tck on May 25 valued at PI54.27, tee nie ‘One adeanagecie ong aerag tbo ie that itis eatively staple to.aply, execly wah exputan. Moreover, the weightod average sete pods ive alte that approximates current value there ica rnd trie fi, Te pc eit whl erie thd ish there maybe azul betes care cat ed inven valation se thet ei te el prs ph tt 9 0 3 ™ erin wei cei eect een singer a tain na ‘Te cue of cost or net realizable vale, whichever is lower nay be applied blows: Lower of Cost or Net Realizable Value by Item indor this plan ehe cost and the net cealzabie valu of each item in inmentory art deetaiiod. Aber which, the bane of valuation (che lower igure) i2 identified for each tem and tv multigued by the quactty on hand to obtain the value ofthe lower of cot or NEV. Te lowe valuation Age for each te edt Some te value ofthe near me Texeret Ce way Valtioo ‘Cotor Desrgtan Quantity pert pertUaie “ame NE Maseialxk yoo Pio «=O ~—«Puoao MasoalY 20 1 "mp RAY aton Teventry valuation P2400 Lower of Total Cost or Total NRV Another method of valuation is 1 ealeaat cost and the total [NRW of the entre anventory The lower of this total is thea used aa the {ventory valuation, av lustated below oS tal Toa Decrpton __Quinuly_partat pert Gt Merl ww Fie PHO Pogo Piioo Mural a ) 00 Pasa00 Inver aston 35,000 Ifthe press of some , method pives less conservative valuation than the by item method ‘cost OR NET REALIZABLy “APPLICATION OF THE RULE OF QRLUS NHICHEVER TS LOWER tsa he re the eu Ey il no wren in te podem they wll be eorporata Co TL eee cate ao ce st ea a Soe be cat ten down to net realizable et aka rent rpaement cost (DATA. PE) of the an Te eh ee evalie mesure oftheir met realise val ‘wo approaches may be used when ‘To adja invety tne vals fallow perpetual aren ee are Be, 8 1 ack mari ees cards asta ie ce the total val ra ne nants et upto rduse the total value of, ratio tel Dia macnitlasge to ahow the new unit ars ee ot cand and aon 12 eel ledger card is adjusted according Rat Div ards ace then totaled to determine the ede bya oneal ouraal entry dabiting eet ey Wrie coun and crediting Material. After Lao tore gr the al of the materials ledger oer fais Materials account in the general wees aeease on the cost of goods sold for deers ae poner tbe crt ad the NRV and does not show the ei dtr lee asa eparte itm onthe income statement de wed rh en recorded at cost and ans sony weke dow in azcounted for separately by debiting = Jose one Trento) Wruedown and crediting a valuation secunt Alawonce for Inventory Write dow 1 asbangunt years, te allowance scant is adjusted upward ot downward depending on the diftrence between the coat and ne! re lizable ‘value of the inventory at year-end. cont aod et reali refer tbe ecand approach i sed ey. is used in order that the effects of write sal of wile-down can be clearly identified eesinanlCoiegsarantmeney a uustration £4 a seashore tig ee Data be —ncmmiagprinenin eae io Seacc 2 RS. a, 217, an djing neo ane oo nang On Deces “urcnoe between the inventory coat and NRW, on ant for P12,000, the if bolows ov? BT oy, Losnon Incetary Wr dou 12.00 12000 Suiowonee fr fcenar Write Doe so ed om reung fn eines RV of ventory to NRV account is treated 8 a2, mest a8 iustated below the Lose on Reduction of iaveatory Tas teat cot of goods sol on the neem “Finished Goods Inventory, Jan. 1 Gant of Goods Manufactured (3 cos) ‘Total Goods Available for Sale Frnsahed Goode Inventory, Dee. 32 Coat of Goods Sold before Inveatory Wrte-down, Add Loss on Inventory Wrie-doun Cost of Goods Sold after Lnventary Wate down Ug ben lan Ue ‘The Allowance for Inv sheet as a deduction fe arory Write dows account is shown in the balance un taveatory account as shown below: JTaventory, at cost Tose Allowance for Laventory write-down Px taventory, at lower ofomtor RY PR a 2. At th ead ofthe Iter prints, the allowance ascunt wll ann Ahased to rec he inventory value at tnt se. Contin ‘uation th en of 17, te slant P00 beredird ic P08 whch the eres tetens th of Ba aad the NRW tale Toredose ti alan ote iowa ne om P00 Put slovnce ant debited FO At aires einen these sounte Th susemant ewer follows 2018 Dec 81: Alouonsfor Inet Wetedown essen frm ier) Wren Io record ir rng rom aon 8000 000 ‘Aa account "Gain on revert of inventory write-down” may’ also be used in place of Recovery fom lnveiory Writedowe aezount. The recovery ‘eduction fv th ct of gods ald a8 shown below . Finished Goode Inventory, Jen. 1 Pex (Cost of Gods Manuictred at cst) —x ‘Total Goods Avaable fr Sle xe Finished Guads Inventory, Dee 31 ay (Cast of Goods Sld belie Reavery fom tory Wrtedown x Less: Resnery fom Torntory Waite down = (Cost of Gants Sold wer Recovery Inventory Write dows Pex ——— en ‘The allowance scant balane of P4000 atthe end of 2018 will again be treated ss a deduction fom the inventory at cst on the balance shes. 2 the net ealiable value exceed the cost ofthe inventory, the valuation sccount ip no longer necesary. An entry would be made ts eines the GreligandCering Marronimeny nag cuTorr DATE TETETETLDLDLT™DLDF sesrpe ee eee eee sre aries tobe tall ao ney tops oh a Fn re escent a eee inet, rolatthene costs are recorded, a cutoff date is established for including an :tions in a specified period. Usually the cutoff date oe ve day ithe o ne end of an interim period such as a transactions associated with items in the ending inventories ace MLSS ishe cursor pened. Treneatone acting events ater the olf date either are not included or are deferred I. company operates on the calondar-year basis, December 31 becomes te aon ne thas ace 9 be included tn the current year. For example, al invoices for materials received on oF fefore December 31 must be recorded inthe materials ledger and posted ta the materials ledger cards. The same principle applies in accounting fbr labor and overhead transactios PERIODIC PHYSICAL INVENTORY More often than not, differences occur between the quantity of a material fon hand and the quantity shown on the material ledger card. To detect these errors and to correct the records, it is necessary to count the materials on hand periodically and to compare this actual count with the: materials ledger cards. A physical inventory can be performed in one of toro ways as fol ‘At the end of an accounting period, such as a year, all production js halted and the employees count and tally the materials on. hand. The operation is resumed after the inventory ia counted and verified dans isrupted procedure isthe continuous or cycle inventory meta. Under tn med only ow ats ee Gach day. Scheduly i ade so that al waren inventoried at Teast once each year, Vv wet nventory Ting Procedures ‘To ck petal ines em pis uly Perform eet xa elec, Theres aig vey may 1 Prepare seily sunbed investoy tag in advance for e mutt oe ee ence aa seer risate Fe arma ny ‘ ised er eter et a i te tae ede eps late wnt hs brain ‘winks Document 17 fog the exer pr crt Theimenton sheet Deeemeat —(epeNTORY DATE. eile ee a ores 5. Ge de avec ut wegh ot mente each material ie recede state very set Thi counts Sapte inepecen fos the fs count, which nas "ha | SOTERUAL enced ot esa 3 oa 66 Gana er Be sawn the ventory ta mith einen tees Dierecs if a al Be vestry abet cana a 1. amp tr acu cts te sheets with he alas ‘Adjustment of Inventory Shortage and Overage shows oe mtr ger cards Te nventary tag Fema ponsdres for adjuting inventory Shortage and overage are died oe mals) Shuai ledger as ar oreted 4 shortage i econded by ed entre on the oer shes, The extension fate under th neue column, Th cot is computed Exes ets on the eves sheets, Th te Gudng ethed FIFO, LIRO, oe woving average) aa the Imtshng materiale were being charged out on a requisition on the closing date. Au overage ia entered under the Received tated and Be oop iver surmarced column ofthe maieeal edger card using the coat of the last 8 Doublechck al investor computations a ree Ei rs ceeeeceaee 2 Rasen ewe Repu Od 12 FP et eae hs wl Sees PVE inane Cr Sete sie lave alte, ‘Reasoos for Inventory Shortages and Overages ‘Thefoliming are wme ofthe esos inventory shortages and overages 1 Fale tpt reaps ano sues ren pate, rar ia recging th erect cutoff dates Spolage a elt of por starage nitions aie due et of materi by employees tet aii fom the by tiers mina fo indegunte ph rte. Computerised Physic! Inventory TE Mhe company bas» soapseried perpetual inventors 85stem, thy compte ena in aking 0 pry inventory. The invetary ‘Sheets as be prep! byte computer. The materia io be inventor te led oo nia sheets lag wit their material numbers Seen less The in ae ken fom the ICN Be ia te eaputers eeany. On th dy ofthe physical InveMtOry, the fioour fens cael snd pte appopeae inventory sheet ‘Te cust and sucrose fr eat er ae thes extored athe compute ‘The we far ced sane cn strane the process of physic invest taking To plement th thology ba codes are attached thal tele Tee arcs ae canned fed the type a number of te it he eters menary. Ths data is downloaded to thy apes Tas ects te aed to manly tpt noe ruts ies the caput sth aentary sets, ARer completing ‘he vestry te ante pts the inventory rocor to efle: any changes tht ave bes bought grb the pica count, INVENTORY MANAGEMENT One of hoses afavenry cnt sto earn maximum profs by Aeeping the iesineat in steals inventory at the minivam lel coupled with ficent melt operations The practice of keeping larger quit of materi in storage thea aze needed for nord operas opchsng quired material ealier than they are needa ‘ornate ep waking capitalunozesarily This can cause Ws! of ince that stern call be cao if funds are inoted ve oth vas ofr et pare machine summary of Principles and Procedures petual inventory system provides complete records of fcipta, neuen, and balances of gerals inventory Unde te ‘Sate: the computation of gunstity is Felatively any bo the prising or valuation process is dificult because prices of atria Bctuate from purchase to purchase ‘The problem of pricing is regived by thee costing methods as follows: 1 The fest i, stout FUFO) method, which assumes that fhe oldest materials ape sued fr 2. The last in first oye (FIFO) method, which assumes vhat he newest matenals. are used frst. This is no longer pormitted by PAS No. 2 3. The moving avorage method, with which a new average cost is compte afer each rocsint of materials Each inventory cootong method hag some advantages and limitations Use che method that beat Sts the company’s need. Vrluation ofthe iavontory atthe end ofthe Suca period is based tn actual cost or according tthe rule of pet ot act realizable wale, whichever is Lower ‘The accuracy of the perpetual inventory evstem must be checked from time to tire BY actual physical count. A-computer enn speed up and simplify the process of taking JUST IN TIME INVENTORY MANAGEMENT ‘The justin time (11T) concept isan improvement in inventory management that focuses on reducing ehe cost of inventory. JIT manufacturing involves restructuring the production process: from receiving new material to shipping the finished producto that every material arrives at the right place on the production line “just in time” to be used. Instead of large inventories boing maintained, tke JTT approach depends on suppliers delivering orders regularly and on time; thus, raw materials arrive just in time to be placed into production ‘ast in ime concept is complimented by the accounting system called the backflush costing, Detailed discussion of backflush costing is made ta “_—____——2%, sing the Lower of Coup IEEE #svesory ‘SRY Method ‘The iavenay af Mega Company on Decent 3 2018 isto be rae ioseinr dete eaten E vent ‘unit are cummarized below: " ‘Material Tris Co Banal Sling Prise Couto Bp AA a) P80 Pa BB 130 10 20 cc im 1 i 0 DD 1m We 1% 0 EE Lm 19 2 o ay Vlation Using the Lower of Cost or Nv Mace Sony Company stcurs adsl fu products, the inventories which ae priced at at ret relznble value whichever is lower A ‘normal pra ef208is sly metaied ex exch product Te allowsg ates comple eo Dees 218 Original Catto Estimated Normal Prone Veer Si seater a en 2 7 je o a sg % ® ms MoS em Ee Required ioe = Chapter 5 Labor Accounting — Control and Costing aloes is one of he major cox elements in 0 manufecturing operation ‘Accounting ster for labor cots ncudesheeping of records of time worked {emotes computing and recording thr eornngs, ond charging cots { pradicton This chapter consis of to port as follows Fort Timekeeping and Payrall Procedures. Port I! Charging Later Casto Production Part TIMEKEEPING PROCEDURES ‘Th ineleping faction noses to alo procedures in labor cou (i ascimultion ofthe tual number ef hours worked by oa eee ta hr eesngs can be smpated sad & dectmanna eee labor ours wee pent o that dsttbuioncam be made nthe oe oe Tictine rors serve as aba for ealeulating goss wages stiones ie ‘Time Cards “The Ge step inthe teeeping Press fous have been worked by each bout tem, thin can be dane by preparing He c2 $$$ ew ato gather data on how rmany Yate eployee. IN 8 mana rd sete called elo, ally placed ino ack nay a re i en paced SA yer ae aman frm enplnees aera record. When employees enter ot land insert or punch them inte Im practive, most ofthe companit 8 time worked Employee ae sued tard wih they aig though a magnetic rad fene the exmpany. These magnet cards at 6! cy they a acd i ie fot dso sem wre jc cards similar to a eed, sand weer a Dey enter aod to the timekeeping department wa 8 eompele: a tine card tem inused a ine coe are the end che tected from the rack wi eat othe emeevgngdeparcment. The payee She td hous worked by each worker An exampl ma bel ROLL, PROCEDURES nl hy cs ne het, lah Gianiueceer cieaaee ee payroll einer, regular earnings, verte peer craig tei cat sory Payroll Register Weel Fact eee eninge ha the tal amouat earned baer Ae of each employs, apptpnate deductions are made and any degre Sroper columns, ana the net pay foreach employee ie Saar compl of te psd reestr Document 0 shown, Sh the next page the num ‘bares payable in two installments on the fifteenth and last day of the sna eins ee Te eel eal repster Deductions from Employees’ Earni Government requirements necessitating payroll deductions play an mportont role in the company’s accounting system. Following are the Usual pavvoll deductions as prescribed by the government. Income Taxes. The employer must withhold income taxes from the tmplavecs’ salaries and wages, The amount withheld is in accordance With 9 table sewed by the Bureau of Laternal Revenwe (BIR) and shall be femited monthly to the BIR. The employer acts as aexlection agent for 3 goveranient. Seca! Security System Contributions. Employer must deduct certain ‘mount from the employees salaries during the month in accordance with {he able issued by the Socal Sout Syatem (SSS), The amount deducted Or the protection af the employees and their familie in easee of fisabity, sickness old age and death. The employer must also pay with ipso, e eweeedemplose his corresponding ehare in accordance eho "mittance ofthe amount deducted is made monthly. bocument 78 i pallingine Heatch soca in Pm ‘emmployecs a to provide the cary health insurance: Emplove ‘ ippine Heah nwarse tonig butions in the ess PAG-IBIG Fund or D, menberennlors Sars The employer evelopment deducted ret Mutual Fund Contributions, ain percentage of hia monte Mek sare tts 88