normal product costing managerial accounting prepared by diane tanner university of north florida...
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Copyright ©2015. University of North Florida. All rights reserved.
Normal Product Costing
Managerial Accounting
Prepared by Diane TannerUniversity of North Florida
Chapter 31
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Production Departments2
Materials Storeroom Factory/Production Area
Costs in departments correlate to inventory
accounts.
Raw Materials
Work in Process
Finished Goods
Ready for
Sale
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Normal Costing A better method of assigning manufacturing costs
to products• Direct materials and direct labor are traced to products • Manufacturing overhead costs are allocated:
Overhead costs are accumulated into an expense account—Manufacturing Overhead
Overhead is then allocated to individual products based on a ‘predetermined overhead rate’ as products are being produced Calculated for the entire company Calculated at the beginning of the year Based on estimates
• Provides more timely product cost information• Appropriate for companies with a multiple products
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Acquiring Raw Materials
The Purchasing Manager fills out an electronic purchase order to order materials from a supplier
When materials are received, the Materials Storeroom Clerk records and stocks the
materials in the storeroom.
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The Materials Storeroom Clerk sends the receiving report to Accounting for
payment.
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Materials Storeroom
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Same as Actual Costing
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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
Same as Actual Costing
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Materials Requisition6
The production supervisor fills out a materials requisition form.
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The materials storeroom clerk delivers the
requested materials to the production area.
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The processed form is sent to Accounting.
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Factory/Production Area
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
A materials requisition form authorizes the use of materials
on a product or job
Same as Actual Costing
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Using Direct Materials
Requisition of Direct Materials to Production• Debit/Increase Work in Process • Credit/decrease Raw Materials
Same as Actual Costing
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Direct Labor8
• Employees fill out time tickets which indicate the hours worked on each product
• Time tickets = source documents• Direct labor cost = gross wages + fringe benefits
Gross wages = Wage rate × hours worked on each product
Incur direct 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 factory-related costs
• Debit/increase Manufacturing Overhead
• Credit/decrease Cash
Requisition indirect materials to production
• Debit/increase Manufacturing Overhead
• Credit/decrease Raw Materials
Incur indirect labor costs
• Debit/increase Manufacturing Overhead
• Credit/decrease Cash, increase salaries payable, etc.
Differs from
Actual Costing
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Assigning Overhead to Products
• MOH is ‘applied’ (allocated) to products– Based on a predetermined allocation rate– Determined at the beginning of the period
• Why is MOH applied? – It is an indirect cost– I.e., impossible or impractical to trace to a
particular product– Need to know product and job costs as production
occurs, i.e., on a timely basis• Waiting until the end of the period when actual costs are
known makes information untimely– Useful for making decisions such as pricing, product
changes, etc.
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Completing Products
The cost of completed goods is transferred out of Work in Process
Debit/increase Finished Goods Credit/decrease Work in Process
The cost transferred out is called Cost of Goods Manufactured
Same as Actual Costing
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Selling Products Transfer the cost of products sold out of Finished
Goods Debit/increase Cost of Goods Sold Credit/decrease Finished Goods
Recognize the sale Debit/increase Cash or AR Credit/increase Sales Revenue
Same as Actual Costing
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The End