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Cost Accaunting 4
Cost Accaunting 4
Content
The procedure that should be followed when materials are issued from the
storeroom.
What bill of material is and the special material issuing procedure.
The procedure to be followed when materials are returned to the storeroom from
production departments
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4.1 INTRODUCTION
Internal control procedures for purchasing must be matched by similar procedures for storing
and issuing materials in order to truly safeguard the investment. These precautionary
measures are necessary to avoid damage, waste, theft, and obsolescence. Physical control
begins the moment the materials are delivered to the storeroom, and continues to be applied
during storage and issuance. Written control begins with the receiving report and recording
the materials ledger, and continues through entries to record issuance and use.
4.2 STORAGE
It is to the advantage of the firm that admission to the storeroom should be restricted without
a proper permeation of the storeroom supervises. The storeroom supervisor is responsible for
the: -
1. Material ledger card
2. The protection of material in the storeroom
3. Identification of the material
Each type of materials is assigned a number, indicating the type of materials and its location.
Materials should be stored according to it nature in a systematic manner in bins, on racks, or
on shelves.
Attached to each shelves, or rack a bin tag should be maintained. It is not mandatory firms
should maintain this tag or card. It is an informal but carefully maintained record showing
only the quantities of the material received, issued, and on hand at all times.
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Bin Tag
Material No._________ Location________
Reorder point________
Description__________
4.3 ISSUANCE
No material should be issued from storeroom without a written form is called a material
requisition.
requisition. It is prepared in duplicate by the department head or supervisor. The requisition
form should indicate.
The quantity of material
Material number
Description and job no. To be charged
In the case of indirect material, the requisition shows the department to which
the materials to be charged.
The storeroom supervisor issues the materials and makes the necessary notations on the
requisition, upon receipt of the material requisition. One copy is filed as a receipt and the
second copy is given to the storeroom clerk. The storeroom clerk enters the unit price and
computes and enters the total amount.
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Material Requisition
Deliver to___________ No. 0005
Acct._________
Charge-job______ Date____________
- Dep._____
Quantity Material No. Description Unit price Amount
Entered on material lager card Entered in material Entered in job Entered on dept.
requisition journal cost sheet overhead and sheet
Approved by Delivered by Received by
Completing the cost computations on the requisition, the storeroom clerk records and enters
in the issue section of the material ledger card, calculates the new quantity on hand, and
records it in the balance section.
A materials ledger card is kept for each type of materials available in the storeroom. Each of
them serves as a perpetual inventory record. The material ledger card is a subsidiary ledger
reconciled against the Raw Material controlling account. The balance of Raw material
control and the sum of the Birr amount on material card should agree at the end of the period.
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Received Issued Balance
Date Reference Unit Price Amount Unit Price Amount Unit Price Amount
Such kind of special journals are mostly used in a job order costing system. It improves
efficiency of the journalizing process when compared to using only a general journal. These
special journals are used to avoid writing the many long and tedious entries involved in
issuing and using materials.
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Month___________ Year_____________ Page No._____
The cost clerk next step is to post the information from the requisition to the material section
of the proper job cost sheet.
Customer Job_____________
Description Date started_______
Quantity Date completed.
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Material
Date Ref. No. Amount Direct labor Manufacturing overhead
Indirect materials are not charged to a specific job; therefore information from requisitions is
posted to the indirect material section of the department overhead analysis sheet. A separate
sheet should be maintained for each respective department.
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4.5 SPECIAL ISSUING PROCEDURE
A complete and well-designed system for the control of materials issuance also includes
provision for special situations.
At a time materials that have been issued may be returned to the warehouse. This can happen
due to:
Taking excess material
Withdrawing the wrong material
Whenever materials are returned they should be accompanied by a returned materials report
similar to the material requisition. The department that originally requisitioned the material
should fill out the report.
After storeroom supervisor checks the returns, the bin card is adjusted by showing the
number of units returned in parentheses in the quantity issued section. The number of units
returned is added to the balance. Then, the returned materials report is given to the storeroom
clerk, who follows the procedure below.
1. Enter the unit and total cost figures on the report. The unit cost figure used is the
same as that used when the materials were charged out.
2. Make an entry in parentheses in the issued section of the materials ledger card.
The new quantity and cost amounts are then entered in the balance section of the
card.
3. Send the returned material report to the cost clerk.
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1. An entry in parentheses in the indirect materials column of the department
overhead analysis sheet or in the materials section of the appropriate job cost
sheet.
2. An entry covering the return in the returned material journal.
Materials requisition
No. - 100
Deliver to – Production Department
Acct.__________ Date, June15, 2003.
Charge – Job 100
- Dep. _____
Quantity Material No. Description Unit Price Amount
10 piece 100 Metal table leg $10 $100
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Received Issued Balance
Date Reference Unit Price Amount Unit Price Amount Unit Price Amount
June 1 B.B. 100 $ 10 $ 1000
June 20 $ 10 $ 200 80 $ 10 800
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(10) 10 (100) 90 $ 10 900
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4.6 RETURN OF MATERIALS TO THE STOREROOM
Due to requesting too much material, withdrawing the wrong materials, or other reasons
materials that have been issued are returned to the storeroom. When materials returned must
be accompanied by a returned materials report, which is similar to the material requisition.
No. 50
Acct.
Credit – job – 100 Date__________
- Dept. Dept. Production
Quantity Material No. Description Unit cost Amount
10 120 10, metal table leg 10 100
Reason for return excessissive Authorized by
After the storeroom supervisor checks, the returns, the bin card or tag is updated (adjusted)
by showing the number of units returned in parentheses in the issued column. This
adjustment will increase the balance. Then the returned material report is forwarded to the
storeroom clerk, who performs the procedures listed below.
1. Record the unit cost figure on the report, which is the same as that used when the
materials were charged out.
2. Enter in parenthesis in the issued section of the material ledger card, which will
increase the balance by the same amount.
3. Pass the returned materials report to the accountant.
The cost clerk completes two important entries.
1. An entry in parentheses in the indirect material column of the department
overhead analysis sheet (in the case of indirect material) or in the materials
section of the appropriate job cost sheet in the case of direct materials.
2. Recording the return in the returned materials journal.
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Returned materials journal:
For month June Year 2003 Page No.
Work in MFC. OHD Raw
Date Report Job or dept. process Cr. Controls Cr. material Dr.
June 15 50 100 100 - 100
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4. What are job cost sheet and what type of data do they provide to management?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4.7 SUMMING UP
A firm procedure for storing and issuing materials must have a verity of internal controls to
protect the investment that the firm has in these items.
Materials on hand must be carefully identified, stored, recorded, and preserved by the
storeroom supervisor and the storeroom staff. Materials are issued only upon written recipe
of a materials requisition. When materials have been issued, entries are recorded on the
material ledger card, the materials requisition journal, and the job cost sheet or departmental
overhead analysis sheet.
- No material is issued with ought a proper written requisition. There for the number
and amount material request should agree with the amount and number of materials
issued.
- A perpetual inventory should be used and also material should e kept according to its
nature, on rack, shelves, or bines.
1. Bin tag only shows the quantity but material ledger card shoes both quantity as well
as amount
2. The material requisition is the source document to determine the amount of material
used and without this requisition form no material will be issued from the store room.
3. Work in process------------179,240
Manufacturing over head------19,520
Row material control-------------198,760
4. Row material-------------------11,820
work in process----------------10,700
MOH. Control------------------920
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4.8 GLOSSARY
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