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Chapter 30. Actual Product Costing. Prepared by Diane Tanner University of North Florida. Methods of Costing Products. Three methods Actual costing Normal costing Standard costing How they differ

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Prepared by Diane Tanner University of North Florida

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Prepared by diane tanner university of north florida 1177363

Chapter 30

Actual Product Costing

Prepared by

Diane Tanner

University of North Florida


Methods of costing products

Methods of Costing Products

  • 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


How costs get assigned to products

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


Inventory accounts for manufacturers

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 departments

Production Departments

Factory/Production Area

Materials Storeroom

Raw

Materials

Work in

Process

Finished

Goods

Costs in departments correlate to inventory accounts.

Ready for Sale


Acquiring raw materials

Materials Storeroom

Acquiring Raw Materials

The Purchasing Manager fills out a purchase order to order materials from a supplier

1

When materials are received, the Materials Storeroom Clerk records and stocks the materials in the storeroom.

2

Factory/Production Area

The Materials Storeroom Clerk sends the receiving report to Accounting for payment.

3


Transactions to acquire materials

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 requisition

Materials Requisition

Will E. Delite

Materials Storeroom

Factory/Production Area

1

The production supervisor fills out a materials requisition form.

The materials storeroom clerk delivers the requested materials to the production area.

2

Authorizes

the use of

materials on

a job

3

The processed form is sent to Accounting.


Materials requisition form

Materials Requisition Form

Why do we bother with a materials requisition form every time production needs materials for a job?

Internal control of assets

Tracing material costs to particular products/ services

To mitigate theft and waste, and prevent overstocking of unneeded inventory which can tie up cash.

To determine the cost of products to set selling prices and make other management decisions


Actual costing

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


Using materials actual costing

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


Time tickets

Time Tickets

Factory/Production Area

Materials Storeroom

Employees fill out time tickets to record the time spent on each product/service


Measuring and tracking direct labor

Measuring and Tracking Direct Labor

  • 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


Incurring labor

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.


Manufacturing overhead

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 Cash

    Incur Indirect Material Costs

  • Debit/Increase Work in Process

  • Credit/decrease Raw Materials


Prepared by diane tanner university of north florida 1177363

The End


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