Prepared by Diane Tanner University of North Florida Chapter 30 1 Actual Product Costing.
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Transcript of Prepared by Diane Tanner University of North Florida Chapter 30 1 Actual Product Costing.
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Prepared byDiane TannerUniversity of North Florida
Chapter 30
Actual Product Costing
Methods of Costing Products
Actual
CostingNormal Costing
Standard Costing
Direct Materials Actual Actual Budgeted
Direct Labor Actual Actual Budgeted
Manufacturing Overhead Actual Budgeted Budgeted*
Three methods Actual costing Normal costing Standard costing
How they differ Whether actual or budgeted costs are used to
determine the ‘cost’ of products or services
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How Costs Get Assigned to Products
• Direct materials and direct labor– Traced to (specifically identified with) a product or
service provided– Easy to determine which product/service to which the
cost belongs because they are direct• Manufacturing overhead
– Consists of indirect costs – Indirect costs cannot be easily identified with one
specific product or service– For a single product, assigned to that product by
default
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Inventory Accounts for Manufacturers
• Three inventory accounts–Raw materials
• Materials to be used in production–Work in process
• Direct materials used in production• Direct labor costs incurred to produce• Manufacturing overhead costs identified
as part of the cost of production–Finished goods
• Goods completed and ready for sale
Production Departments5
Materials StoreroomFactory/Production Area
Ready for Sale
Costs in departments correlate to inventory
accounts.
Raw Materials
Work in Process Finished
Goods
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Acquiring Raw Materials
Materials Storeroom Factory/Production Area
The Purchasing Manager fills out a purchase order to order materials from a
supplier
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When materials are received, the Materials Storeroom Clerk records and stocks the materials in the storeroom.
The Materials Storeroom Clerk sends the receiving report to Accounting for payment.
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Transactions to Acquire Materials
Purchase Materials for Cash• Debit/increase Raw Materials• Credit/decrease Cash Purchase Materials on Account• Debit/increase Raw Materials• Credit/increase Accounts Payable Pay for materials previously purchased on account• Debit/decrease Accounts Payable• Credit/decrease Cash• Credit/decrease Inventory for cash discount, if
any
Materials Requisition8
Materials Storeroom Factory/Production Area
The production supervisor fills out a materials requisition form.
PearCo Materials Requisition Form
Requisition No. X7 - 6890 Date March 3Job No. A - 143Department B3
Description Quantity Unit Cost Total Cost2 x 4, 12 feet 12 3.00$ 36.00$ 1 x 6, 12 feet 20 4.00 80.00
116.00$
Authorized Signature Will E.
Delite
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The materials storeroom clerk delivers the
requested materials to the production area.
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Authorizes the use of
materials on a job
The processed form is sent to Accounting.
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PearCo Materials Requisition Form
Requisition No. X7 - 6890 Date March 3Job No. A - 143Department B3
Description Quantity Unit Cost Total Cost2 x 4, 12 feet 12 3.00$ 36.00$ 1 x 6, 12 feet 20 4.00 80.00
116.00$
Authorized Signature
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Materials Requisition Form
Why do we bother with a materials requisition form every time production
needs materials for a job?Tracing material
costs to particular products/ services
To mitigate theft and waste, and prevent overstocking of unneeded inventory which
can tie up cash.
Internal control of assets
To determine the cost of products to set selling prices and make other management decisions
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Actual Costing
• Used when there is only one product or one services
• Cost of inventory is – Actual direct materials– Actual direct labor– Actual manufacturing overhead
• All inventory costs are added (debited) directly to work in process
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Using Materials (Actual Costing)
Requisition of Direct Materials to Production• Debit/Increase Work in Process • Credit/decrease Raw Materials Requisition Indirect Materials to Production• Debit/increase Work in Process• Credit/decrease Raw Materials
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Time Tickets
Materials Storeroom
Factory/Production Area
Employees fill out time tickets
to record the time spent on
each product/service
PearCo Employee Time Ticket
Time Ticket No. 36 Date March 4
Employee I. M. Skilled Station 42
Starting Ending Hours HourlyTime Time Completed Rate Amount Job No.0800 1600 8.00 11.00$ 88.00$ A-143
Totals 8.00 11.00$ 88.00$ A-143
Supervisor C. M. Workman
Measuring and Tracking Direct Labor13
• Multiply each employee’s wage rate by the number of hours that each employee works on each product• Gross wages • Add fringe benefits
• Overtime premium (the extra ‘half’ time paid) when employees work over 40 hours• If the result of production problems or
idle time, treat as overhead• If the result of accepting a rush order,
treat as direct labor
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Incurring Labor
Incur Direct Labor Costs• Debit/Increase Work in Process• Credit/decrease Cash, increase salaries payable,
etc.Incur Indirect Labor Costs• Debit/Increase Work in Process• Credit/decrease Cash, increase salaries payable,
etc.
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Manufacturing Overhead
Includes indirect materials, indirect labor, and factory (production facility) related costs
Incur Indirect Labor or Factory Related Costs• Debit/Increase Work in Process• Credit/decrease CashIncur Indirect Material Costs• Debit/Increase Work in Process• Credit/decrease Raw Materials
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The End