Professional Documents
Culture Documents
Costs For Specific Orders
Costs For Specific Orders
Section: YN
Student: Teacher:
Cesar Cogollos Linaster Barrero
INDEX
INTRODUCTION
Definition
Goals
Characteristics
Advantages
Disadvantages
5. SELF-ASSESSMENT
6. CONCLUSIONS
7. BIBILIOGRAPHY
INTRODUCTION
The accumulation and classification of figures related to production costs is a task of
fundamental relevance, because it allows the achievement of one of the objectives of cost
accounting:
the costing of the finished product; This is calculated by accountants for two purposes: for
decision making that allows management to evaluate their pricing policies and the different
products that are manufactured, and as financial information that is reflected in the income
statement through the account. as cost of sales and as inventory value (finished goods and in
process) on the balance sheet.
According to the characteristics and nature of the production process, companies establish
the system to accumulate and associate costs with the product unit, in order to satisfy the
needs for timely, reliable and valid information that allows management to make informed
decisions. of appropriate decisions.
In this Monograph, the description and analysis of the flow of costs is carried out in a cost
accounting system for specific orders, from the moment the production order is issued, until
the accounting and determination of the costs of the finished production. going through the
three moments of the production process: products in process, finished products and cost of
items sold.
In order to achieve greater control of production costs, companies must opt for the use of a
perpetual accumulation system, because it provides continuous information on materials,
products in process and finished products, cost of items. manufactured and cost of sale,
achieving the objectives of accumulating total costs, calculating unit costs and continuously
and permanently maintaining information for management to facilitate planning and control
decisions.
The application of the acquired knowledge is reflected in a specific type of company, those
that manufacture according to customer requirements.
Definition:
The order-specific cost accounting system, also known as production order, batch, order or
work order costing system, is a cost accumulation system according to customer
specifications or in some cases to be taken to the warehouse of finished products, in which the
costs involved in the production process of a specific or defined quantity of products are
accumulated or compiled successively by their elements (direct materials, direct labor and
indirect costs), which are charged to a work, manufacturing or production order, regardless of
the time periods involved. For example, some jobs can be completed in a short period, while
others can span several months.
This system is the most appropriate to use when the products being manufactured differ in
terms of material requirements and conversion costs; and, production consists of special jobs
or processes, according to specifications requested by customers, rather than when products
are uniform and the production process is repetitive or continuous. The unit production cost
is obtained by dividing the total production cost of the order by
the total units produced from that order. Among the industries that use this costing system
are furniture factories, footwear factories, clothing factories, household goods, machinery and
construction companies.
It is worth mentioning that, although this topic focuses on manufacturing companies, the
majority of service companies use the order system, such as car repair shops, machinery
repair and maintenance contracts, medical services, audit contracts, among others. others.
Goals:
Characteristics:
Among the characteristics of the system by specific orders, extracted from the different cost
accounting texts, the following can be mentioned:
Accumulate and assign costs to: Specific jobs, set or batch of products, an order, a
contract, a production unit.
Each job has different production specifications, therefore the costs are different,
allowing each of the cost elements to be gathered separately for each finished or in-
process work order.
It is appropriate when production consists of special jobs or processes, rather than
when products are uniform.
It makes it possible to notify and subdivide production, according to production
needs, inventory control or company management.
You work for a special market and not to satisfy a global market.
Direct materials and direct labor are charged directly to each lot and indirect costs are
allocated on some proration basis.
Unit costs (Actual Costing) are not available until the order is completed.
Production does not have a constant or continuous rhythm, so there must be careful
production planning.
The costs are accumulated in a cost sheet, considered the auxiliary of products in
process, called Production Order. The source documents in an accounting system
represent original records that serve as support for the journal entries, in the cost
system for specific orders the production order represents the source document that
allows accumulating all the costs assigned to a specific job from the moment that
starts until its completion. Figure 1.1 shows the format of a production order,
identifying the main elements or information it must contain.
CONCEPT | DIRECT MATERIAL | DIRECT LABOR | INDIRECT COSTS | TOTAL | UNITS | UNIT
COST || | | | | | || | | | || || | | | | | || | | | | | || | | | | | |
TOTAL | | | | | | || || |
Advantages.
Disadvantages
Its administrative cost is high, due to the detailed way of obtaining costs.
There is some difficulty when the production order has not been completed and
partial deliveries have to be made, because the cost of the order is obtained until the
end of the production period.
To start their productive activity, companies that use the cost system for specific orders need
to issue a production order for each job or batch. Each production order must have a Cost
Sheet (figure 1.1), in which they are recorded. the costs of direct materials, direct labor and
indirect costs required in the process of preparing a certain order or batch as the work is
developed. Selling and administrative expenses, which are based on a percentage of the cost
of production, manufacturing or manufacturing, are specified on the sheet
of costs to determine the total cost. Cost sheets are established at the beginning of the job and
remain in effect until the products are completed and transferred to the finished goods
warehouse.
The structure of cost sheets can vary from one company to another; However, there are
essential data that must be collected to provide the information required by management. A
sample cost sheet is shown in Figure 1.1. Among the main data that must be included in a cost
sheet are: order number or production sheet, description of the item to be manufactured and
the quantity, start date, completion date, direct material cost section , direct labor and indirect
costs and cost summary section.
Some formats include selling and administrative expenses and the selling price so that the
estimated profit for each work or production order can be easily determined.
For a cost system for specific orders to work properly, it is necessary to physically identify
each work order and separate its costs, for which documentation and procedures are required
that allow the manufacturing inputs of a job to be associated. This need is met by using:
materials requisitions, separate for each job, to identify direct materials; Job Tickets for direct
labor costs, identified by cost work order number; and indirect cost application bases
identified with each production order (for example if the base
are machine hours, then the number of machine hours that, in the period, each order used in
the production process must be established).
When the products are finished being manufactured and once all the costs have been noted in
the respective cost sheet, they are liquidated; To do this, each of the three columns containing
the amounts of the cost elements is totaled and the totals of the columns are added to obtain
the total cost of the production order; This total cost is subsequently divided by the number of
units manufactured and the cost of each unit produced in said order is obtained.
The production flow is the way to explain the costs from the point at which they are incurred,
to the point at which they are recognized as an expense in the income statement. Knowing this
flow in orders is of great interest, for which a brief explanation of the accumulation of the
three elements of cost in a production order costing system.
The elements of the production cost, in any accumulation system, require adequate internal
control regulations, which guarantee their integrity and reasonable allocation to product
units, therefore, regardless of certain particular conditions, the control regulations are usually
identical. in cost accumulation systems, so some considerations on the control necessary for
each cost element are presented below.
The control procedure begins when the sales department issues an order for the manufacture
of a product,
This order may respond to the requirements of a particular customer or an internal request to
maintain an adequate stock of finished products in the warehouse. Once the order is received,
the production area must plan the production process, type of material to be used, personnel
requirements, delivery time, among others. Likewise, cost accounting must be informed so
that it can open the auxiliary products in process that will allow control of the order to be
manufactured.
MATERIAL CONTROL
As mentioned in previous paragraphs, the production order represents the source document
in a cost system for specific orders, but the information that accumulates in the orders comes
from source documents that allow each item to be costed individually (materials, labor and
indirect costs). The first element of the cost is the direct materials, which according to the
specifications and procedures of the company are requested from the warehouse or
warehouse to start the production process. This request is made through a source document,
called materials requisition, which constitutes the document that provides information on the
quantity, type and cost of material to be used in production.
In the same way, the materials requisition indicates the destination of the materials, that is, if
it indicates that the material is for exclusive use for a job or order and therefore can be easily
assigned to the process, we will classify this material. as direct material. On the contrary, if the
requested material is
General use for various processes or represent production supplies are called indirect
material and/or factory supplies, which according to the classification studied in previous
modules is classified as indirect costs.
In a manufacturing company, the amount of material requisitions that occur in a given period
is considerable or significant, therefore the use of a summary of material requisitions is
established that facilitates the accounting procedure for recording orders and journals.
Below, part of the activities, functions and possible departments that must exist in a
manufacturing company to guarantee adequate control of the use of materials in a system by
specific orders are presented in a systematic, logical and sequential manner.
Production
* When the production process begins, the Materials Request or Requisition form is prepared
in production in at least the original and two copies.
Store:
* Receives the form, completes it in the unit cost and total cost items
* Outputs the materials in the submajor (Ká rdex) according to the valuation method.
* Send the materials to production, along with the original of the application form.
Accounting
, since its header was filled out when contracted with the client.
LABOR CONTROL
The labor control cycle is similar to that described for direct materials, with work tickets
constituting the basic source document for the allocation of direct labor costs, according to
the productive time invested in the orders. of production.
The timing function plays a fundamental role, because through it it is possible to control the
productive time of direct workers, which must be attributed to the respective production
orders where the worker performed manual work or activated the machines that They
transform the direct material into the new product. Work tickets are the form that allows such
control. With the information contained in the clock cards, the payroll can be prepared; both
forms allow accounting entries to be made.
It is important to remember that labor is classified into direct labor and indirect labor,
therefore it is essential that a decision be made for reasons of accounting consistency and for
product costing, treatment (direct labor or indirect labor) that will have aspects related to
vacations, holidays, bonuses, preparation time, idle time, social benefits, employer
contributions and employer sections corresponding to direct labor.
Generally, in companies that work for specific orders, indirect labor usually includes the
following items: Management and supervision, office workers
of production, Non-productive time, indirect work of the direct worker, surcharge for
overtime when these are done randomly. Overtime that arises from urgent requests from
some clients should be considered direct labor, as should the surcharge generated by them.
When each job begins, the worker or production manager proceeds to fill out the work slips,
indicating the start time of the productive work in a specific production order and the
completion time; In this way, at the end of a period, an analysis is made of the workers' work
slips, proceeding to make a summary that indicates the time dedicated by each worker to each
order or order, and the rate to be applied for each hour worked is also calculated. , in this way
the No is multiplied. of hours for the corresponding rate and the cost to accumulate in each
production order is obtained. After recording the corresponding cost in each order, the
accounting record is made.
In a system for specific orders, the use of the normal costing technique is of fundamental
importance, because it allows the indirect cost to be normalized in the different production
units, and also contributes to solving the problems that arise with this cost element. , such as,
among others:
* Sometimes the product is finished and even sold and the total amount of real indirect cost
is still not known, because for example the receipts corresponding to services such as water,
electricity, telephone, maintenance, etc. have not arrived at the factory.
among others.
* There are indirect cost items that have different behavior regarding production volumes,
such as variable, fixed and mixed indirect costs.
* There are months of high production and months of low production, where the products
would have different and distorted unit costs due to the effect of fixed indirect costs.
For a summarized illustration of the use of normal costing, the procedures carried out before,
during and at the end of the accounting period, when this single rate indirect cost
predetermination technique is used, are presented below.
Establish the basis of application of indirect costs, or in other words, determine in which unit
of measurement the production volume is going to be expressed, whether they are going to be
machine hours, man hours, labor cost, material cost, units. of product, etc.
* Establish the capacity budget (at what volume the factory will operate, that is, how many
hours or how many products will be manufactured, etc., everything depends on the unit of
measurement chosen in the previous point).
* Calculate the predetermined indirect cost rate, dividing the indirect cost budget by the
capacity or production volume budget expressed on the chosen basis.
* Apply indirect costs to each production order, multiplying the predetermined rate by the
actual volume obtained in each order.
* Record the indirect costs actually incurred, in the control account, and in their respective
auxiliaries.
* Determination of the variations (favorable and unfavorable), considering whether they are
due to a variation in the indirect cost budget, with respect to the indirect costs actually
incurred, or a variation in the capacity or actual production volume, in relation to the
budgeted volume.
* Analysis of variations, granting merits for favorable variations, when applicable, and trying
to correct failures and inefficiencies for the next period, in the case of unfavorable variations.
* Closing of variations against the cost of sale, considering said variation insignificant. If the
variation is significant, its amount must be distributed among all production (products in
process, finished products and products sold).
Once a production order is completed, each of the columns is totaled, thus obtaining the cost
of direct materials invested in said order, as well as the cost of labor and indirect costs. Then
the totals of the three elements are added and we obtain the production cost of the order, this
total is divided by the number of units manufactured in it, and the unit cost of the products
manufactured in that order is obtained.
This cost is transferred to the warehouse of finished products for subsequent delivery or sale.
Figure 5.2 corresponds to the production flow in a production order costing system.
Material
Requisitions
Summary
requisitions
Materials
Labour
Indirect costs
Labour
Job Tickets
Indirect costs
Actual indirect costs: indirect materials, indirect labor and other indirect costs
Applied indirect costs
Address real and applied costs
Inventory of finished products
(order 1 is settled)
Over or under application of indirect costs
Final Inventory of products in processes
(orders 2 and 3 remain open)
Ballot summary
l) Obtain the total cost of indirect manufacturing costs in accordance with the company's
technical staff.
n) Coordinate with the responsible administrative units the type of information needed.
o) Establish the database that serves as a basis for calculations of production costs.
The accounting records that are commonly considered in the procedure include the purchase
and use of materials, the registration of labor liabilities and payroll distribution, application of
indirect costs, settlement of orders, sale of orders, registration of costs actual indirect costs,
closing of the temporary indirect cost accounts and opening of the variation, closing of the
indirect cost variation (considered insignificant or significant, as indicated below.
In the event that the actual indirect costs are greater than the applied ones, an under-
application of indirect costs is presented, otherwise, the variation would result from the type
of over-application of indirect costs. When the variation in indirect costs is considered
insignificant, it is closed against cost of sale, which represents that the final balances of the
inventory accounts (products in process and finished products) are left with applied costs,
this is reflected in the statement of production costs. and sale.
9010 Production order 001 XXX 9011 Production order 002 XXX 9012 Production order
003 XXX | | |
To record the cost of salaries and wages for the current month | | |-x- | | |
91 LABOR IN PROCESS9110 Production order 001 XXX 9111 Production order 002 XXX9112
Production order 003 XXX | XXX | |
To record the costs incurred in labor for the current month | | |-x- | | |
9210 Production order 001 XXX 9211 Production order 002 XXX 9212 Production order 003
XXX | XXX | ||
79 CHARGEABLE CHARGES
2111 Production order 001 XXX2112 Production order 002 XXX2113 Production order 003
XXX | | |
70 SALES | | XXX |
The structure of the State of production and sales costs, when the variation is considered
insignificant, presents as a characteristic that in the cost line of the period, what is related to
the cost element called Indirect Manufacturing Costs, is expressed on the basis of the costs
indirect applied according to the application rate and actual volume. When working with
applied indirect costs, the result obtained in the statement at the end is called Normal
production and sales cost.
To convert this normal cost to a real cost, the variation that was generated in the comparison
of the applied indirect costs against the real indirect costs must be added or subtracted,
depending on whether there were
Expressed in Soles |
The practical case analyzed below corresponds to the cost system for specific orders
corresponding to one month of a company dedicated to the production of clothing. This
system allows determining the total and per unit production costs of the orders that the client
requests. These costs incurred are accumulated per batch worked and the actual cost can only
be obtained upon completion of the batch being manufactured.
OPERATIONS:
1. 3,000 meters of poplin are purchased for S/. 50.00 each meter
2. 1,600 meters of pimaline are purchased for S/. 40.00 each meter
3. 2,000 dozen buttons are purchased for S/. 6.00 each and 300 boxes of thread (20 tubes) at
S/. 30.00 each.
4. 25 gallons of petrolube oil are purchased for S/. 22.00 each and 60 sewing machine needles
at S/. 10.00 each.
5. Production of production order No. 001 for 500 executive model shirts begins.
6. 750 meters of poplin are removed from the warehouse for production order No. 001.
According to consumption voucher No. 108 requested by cost center I (CORTE).
7. Production orders No. 002 and 003 are started for 400 manager model shirts and 100
junior model shirts respectively.
8. 600 meters of pimaline are removed from the warehouse for production order No. 002.
According to consumption voucher No. 115 requested by cost center I (CORTE).
9. 25 boxes of thread for production order No. 001 are removed from the warehouse.
According to consumption voucher No. 118 requested by cost center II (CONFECTION).
10. 20 boxes of thread for production order No. 002 are removed from the warehouse.
According to consumption voucher No. 120, requested by cost center II (CONFECTION).
11. 250 dozen buttons and 5 boxes of thread for production order No. 001 are removed from
the warehouse. According to consumption voucher No. 123.
13. 150 meters of poplin are removed from the warehouse for production order No. 003
according to consumption voucher No. 124, requested by cost center I (CUT).
14. 500 cardboard boxes and 500 plastic bags are removed from the warehouse for
production order No. 001, according to consumption voucher No. 125, requested by cost
center II (PACKAGING).
15. One gallon of petrolube oil and two sewing needles are consumed in cost scepter II
(CONSTRUCTION).
16. The salary sheet is paid and according to the place where each of the servers is working,
the distribution of the cost is as follows.
17. A gallon of petrolube oil is removed from the warehouse, according to consumption
voucher No. 128, requested by cost center III (DONE).
19. Production order No. 001 is completed and 490 shirts in good condition are delivered to
the warehouse. The substandard shirts have been discarded and are not recoverable in this
case.
20. The salary sheet corresponding to the period is paid and according to the place where
each server works, the distribution is as follows.
21. Production order No. 002 at the end of the period has completed process II
(PREPARATION) and is ready for process III (FInished).
22. Production order No. 003 at the end of the period has
23. Determine the amount of monthly depreciation of fixed assets distributed as follows:
24. Determine the provision for compensation for personnel service time.
It is requested to determine the cost of each production order, based on the units.
Solution:
| | | | TABLE Nº 01 | | | | |
| | | | COST SHEET | | | | |
No. | DETAIL | TOTAL | O/P 001 | O/P 002 | O/P 003 | C.COST I | c. COST II | c. COST III |
INDIRECT |
Table No. 001 summarizes the total production cost incurred in the manufacturing of the
three manufacturing orders of the shirts, where you can also see the cost incurred by each
cost center: C.Costs I, C.Costs II and C. Costs III. The last column is recording the indirect
manufacturing costs, which will have to be distributed between the cost centers and
production orders, as detailed in the tables that follow.
It can be noted that the total manufacturing cost in the production of the three orders
amounts to S/. 130,123.00 This amount will be distributed among the three orders that are
being worked on and which is detailed below until reaching table No. 06, where the
production cost of all the work is summarized.
| TABLE Nº 2 | | |
II CONFECTION | S/.14,542 |
Table No. 02 details the distribution of indirect manufacturing costs, which amounts to S/.
16975.00 between the three cost centers of the production process, having taken as a basis
100% of the cost of the cost centers, which amounts to S/. 38,148.00
| | TABLE Nº 3 | | | |
The cost to distribute of S/. 13,968.00 that comes from box No. 02 has been distributed to
orders No. 001, 002 and 003, taking as the basis of distribution the number of shirts planned
to be made. It should be taken into account that the cost center I: Court has provided services
to the three orders that are being prepared.
| TABLE Nº 4 | | | |
The cost of S/. 21,013.00 that comes from table No. 02 has been distributed between orders
No. 001 and 002, to which cost center II has provided service, that is, it was not distributed to
order No. 03 because the cost center
| TABLE Nº 5 | | | |
Table No. 05 shows the cost of S/. 20,142.00 from table No. 02 corresponding to cost center
III, 100% has been distributed to order No. 01, which was provided service, but not to the
other production orders.
| TABLE Nº 6 | | |
Finally, table No. 06 summarizes the production cost of each of the production orders.
Production order No. 01 is completed and orders No. 002 and 003 are in process.
As of April 30, production order No. 05 was in process, required by the warehouse, started on
04-20-04 to manufacture 50 pairs of wide-ranging “Karina” model sandals.
acceptance in the market. Said order presented as balances: Materials S/. 20.00, labor S/.
40.00 and indirect costs S/. 30.00
The company does not have an inventory of materials, therefore on April 25 the purchasing
department makes a purchase of materials on credit to be paid in sixty (60) days, which is
received on the 30th of the same month. The material received is described below:
On April 28, 20X4, an order was received from the customer Calzados Pucci CA for the
manufacture of 100 pairs of footwear of the KM-080 model, which is expected to be delivered
no later than June 4, 20X4 and will be sold at production cost plus fifty percent (50%). On May
1, 20X4, this production order, assigned with No. 06.
On May 1, 20X4, the production department requested the following materials to begin
working on order No. 06, through the Materials Requisition format No. 30-04. The materials
requisition is the source document for materials in a specific order costing system (this
format was studied in detail in unit II):
Direct material:
indirect material:
Materials were also requested, through requisition 31-04, to comply with production order
No. 05 of:
* Mr. José Mendoza worked forty (40) hours. Ten hours (10) were worked on order 05 and
the remaining hours on order 06.
* Both Mr. Jhonny Rodríguez and Ms. Rosa García worked eighty (80) hours. Each of them
worked twenty (20) in order 05, the rest in order 06.
*Messrs. Mario Jiménez and Raú l Pérez worked forty (40) hours each. Ten of which worked
on order 05, the rest on order 06.
* The list of salaries and wages, contributions and employer sections is presented below. The
recorded withholdings amounted to S/.. 243.00)
The production department of the company La Gran Venecia CA applies indirect costs at a rate
of 75% of the cost of direct labor.
40 pairs of “Karina” sandals from production order No. 05 are sold in cash, for a sale price of
S/. 101,875 each pair.
The actual indirect costs incurred by the production department for the month of May 20X4,
in addition to indirect materials and indirect labor, totaled the amount of S/. 263,170, which
include:
Solution
Materials accounting
All purchases of materials and supplies are recorded in the Materials and Supplies Inventory
account as they are purchased; This account is generally supported by an auxiliary ledger
made up of continuous inventory cards, which show the entries, exits and stocks of each type
of material in the warehouse. Materials are kept in the materials warehouse and are only
delivered upon submission of a duly approved requisition.
In this example, to record the purchase, the amount is debited from the Materials and Supplies
Inventory account and credited to Accounts
to pay. The Materials and Supplies Inventory account is a real asset account that controls all
materials, both direct and indirect.
Any delivery of materials made by the employee in charge must be supported by a materials
requisition approved by the department manager or production supervisor; The materials
requisition must necessarily indicate the quantities and description of the materials, and
above all, the production order number for which the material is requested. An example of
this form is shown in Figure 5.4.
In a manufacturing company, there are many requisitions that can be prepared in a given
period, hence the need to condense the information into a summary of requisitions, which
allows establishing what in total each order consumed in materials, and what cannot be
identified. with orders will be classified as indirect material. Figure 5.5 shows the Materials
Requisition Summary. Although requisitions also contain information regarding indirect
material costs, remember that these are assigned to jobs using the predetermined indirect
cost application rate.
When direct materials enter the production process, they are debited to the Work in Process
Inventory materials account and the materials column of the respective order is affected to
record the addition (see Figure 5.9.), and indirect materials are debited To the Actual Indirect
Costs account, the credit is made to the Materials and Supplies Inventory account. Remember
that the Actual Indirect Costs account is a temporary account that is debtor in nature and
controls all items that are considered indirect to the product. Labor accounting
of costs for specific orders are time cards and work tickets, which indicate the workers'
attendance at their jobs (these formats were studied in detail in unit III). Time cards
mechanically provide a record of the total hours worked each day by each worker. Figure 5.6
and 5.7 present as an example the time card and the work ticket, respectively, corresponding
to the worker José Mendoza.
Time cards are periodically summarized to calculate and record payroll. The salaries and
wages reflected in the payroll are the reference point for calculating employer contributions
and sections. It is up to the personnel department to present all this detail to accounting.
According to the information from this exercise, the following summary is established:
These sums are reflected in the records corresponding to labor liabilities and the cancellation
of salaries and wages.
Work slips are prepared daily indicating the order in which work was done and the number of
hours worked. Work tickets are periodically summarized to establish the time identified with
production orders. This condensed information is reflected in the “work ticket summary” that
is presented in
figure 5.8. To express this time in monetary terms, it is necessary to establish the cost of the
hour of the direct worker. There are different criteria for calculating the cost of the hour, the
cost department recommends that all labor benefits that are identified with direct workers
(wages and salaries, employer contributions and employer sections) be considered in the
calculation.
To simplify the procedure, the cost of the average hour will be calculated, that is, the sums of
money corresponding to all direct workers among the hours worked by all of them
(calculating the cost of each worker's hour separately is only justified when present profound
differences in the benefits they perceive and work in different orders). The calculation of the
cost of the direct worker's hour is presented below:
The sums of labor money identified with production orders represent a debit to the labor
work in process inventory account, for the portion that represents direct labor, and to the
Actual indirect costs control account, for the portion that represents direct labor. portion that
corresponds to indirect labor, the credit is made to the Payroll account to be distributed.
TIME CARDEmployee name: José Mendoza Employee number: 015Week of: 05/02/20X4 to
05/08/20X4 |
8 a.m. 12 p.m. 1 p.m. 5 p.m. | 8 a.m. 12 p.m. 1 p.m. 5 p.m. | 8 a.m. 12 p.m. 1 p.m. 5 p.m. | 8 a.m.
12 p.m. 1 p.m. 5 p.m. | 8 a.m. 12 p.m. 1 p.m. 5 p.m. |
| |8 | 8 | 8 | 8 | 8 | | |
Day | Production Order No. 05 | Production Order No. 06 | Indirect work | Total |
SUMMARY OF JOB TICKETS Date: MAY 20X4 HOURLY COST = S/. 6.70 ./HMOD |
Day | Production Order No. 05 | Production Order No. 06 | Indirect work | Total |
When
a normal costing system is used, actual indirect costs are not assigned to production orders;
They are applied to each individual production order based on a predetermined application
rate. In the accumulation procedure for specific orders, you can work with a single rate or
departmental rate. In this unit the procedure for indirect costs applied with a single rate will
be described. The procedure for assigning indirect costs to production orders and recording
actual indirect costs is described below.
Application of indirect manufacturing costs: The total cost of direct labor for production order
No. 05 was S/. 469.00, therefore, the indirect costs applied total S/. 351.75 (75% of S/.
469.00); In the case of order No. 06, the labor cost was S/. 1,407.00, therefore, the indirect
manufacturing costs applied will be S/. 1,055.25 (75% of S/. 1.407.000). Applied overhead
costs are debited to the Work in Process Inventory Overhead Costs account and credited to
the Applied Overhead Costs account. The accounting entry to register the application
corresponds to No. 6 of figure 5.11.
Once a job is completed, the direct materials, direct labor, and overhead columns for each
order processed are totaled on the corresponding cost sheet, and these totals are passed to
another section of the cost sheet, where they are totaled. to obtain the cost of production or
manufacturing of the work. This total is divided by the amount
The job cost sheet is filed and the finished production costs are transferred from the work-in-
process inventory accounts (for each item) to the Finished Goods Inventory account. The
Finished Products account must be supported by a subsidiary ledger, in which there are
auxiliary or subsidiary accounts for all finished products in stock (see figure 5.10).
Figure 5.9 shows the complete cost sheet for production order No. 05 completed on May 29,
20X4.
The total manufacturing cost of S/. 1,018.75 of order No. 5 (direct materials S/. 128,000 +
direct labor S/. 509,000 + indirect costs S/. 381,750) is transferred from the Products in
Process Inventory accounts to the finished products inventory account, creating an entry in
the journal, assigned with number 7.
When the products are sold, the Cost of Sales account is debited and the Finished Products
Inventory account is credited for the manufacturing cost of the finished and sold products.
Additionally, the sale is recorded by debiting the Bank or Accounts Receivable account and
crediting the Sales account for the sale price. When selling 40 pairs of Karina sandals from
production order No. 05, a journal entry must be made to record the output from the finished
goods warehouse and the sales revenue (entry 8) in the main journal. The auxiliary of
finished products must also be affected (see figure 5.10).
| | | End date | | |
CONCEPT | MATERIAL | LABOR | INDIRECT COSTS | TOTAL | UNITS | UNIT COST |
| | | End date | | |
TOTAL | | | | | | |
Date | Quantity | Unit Cost | Total Cost | Quantity | Unit Cost | Total Cost | Qty | Unit Cost |
Total Cost |
Beginning balance | | | | | | | | | 0 |
The debit balance in the Actual Overhead control account indicates the total overhead costs
consumed at a given time, and the credit balance in the Applied Overhead account shows the
overhead costs assigned to products based on a predetermined rate. The difference between
the balances of these two accounts represents the change in indirect costs at any time.
To illustrate the treatment of variations in indirect costs, the entry corresponding to the
variation in indirect costs for the month of May 20X4 is made below, in the example of the
company La Gran Venecia SA
To establish whether there was a variation in indirect costs, the balance of the Actual Indirect
Costs account is compared against the balance of the Applied Indirect Costs account and the
variation is calculated by subtracting the reference balances, as follows:
Concept | S/. |
Variation | 436.17 |
In this example we are talking about a sub-application because the actual indirect costs were
higher
to indirect costs applied to production orders. For this operation, two entries must be made:
the first (signed No. 10), to close the real and applied indirect cost accounts, recording the
subapplication; and a second entry to close the sub-application.
| Bank | | 2,187.00 |
| Product inventory
Bank | 4,075.00 | |
Cost of sale | 815.00 | |
| Sales | | 4,075.00 |
P/record closing of the temporary accounts and opening of the variation |-11- | | |
Figure 5.11. - Accounting records in the Main Journal (the accounts belong to the Venezuelan
Accounting Plan, but can be changed to our PERUVIAN PCGE.
When the variation is considered insignificant, the final balances of products in process and
finished products contain applied indirect costs and the cost statement presented is the
normal production and sales cost statement, with adjustment of the variation until the cost is
achieved. of production and actual sale.
of the cost flows for the month of May of the manufacturing company La Gran Venecia SA,
through general ledger accounts corresponding to production. The numbers in parentheses
refer to journal entries, which were made to record costs. Although the illustration is specific
to this example, the flow pattern shown is found in any manufacturing company that employs
a job-specific costing system with estimated indirect costs.
The activities of the manufacturing company La Gran Venecia SA, for the month ending May
31, 20X4, are summarized in the Statement of Production and Sales Costs, which is presented
in figure 5.13. The difference between this Production and Sales Cost Statement and the one
explained in Unit 1 consists of the use of indirect costs applied to obtain the Cost of
production processed in the period or the Manufacturing Cost of the period. Inventories of
products in process and finished products are carried at normal cost and not at actual cost,
due to the incidence of applied indirect costs.
The cost of production and sales before adjusting for the variation between actual and applied
indirect costs is called Normal cost of production and sales; After the adjustment for the over
or under application of the indirect costs of the period, the actual Cost of production and sale
is obtained as a result.
Finally all costs flow to the Income Statement for the period. Figure 5.14 shows the Income
Statement of the company La Gran Venecia SA, assuming that administration expenses
amounted to S/. 325,500 and sales expenses corresponding to the period were S/.. 260.000.
Initial Inventory | | | | 0 |
Cost of Sales |
-------------------------------------------------
LA GRAN VENECIA SA
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(in Soles)
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Indirect costs applied 1,407.00 Production cost of the Normal period 3,839.00
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
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-------------------------------------------------
less:
-------------------------------------------------
Cost of goods sold normal 815.00
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-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
LA GRAN VENECIA SA
-------------------------------------------------
Statement of income
-------------------------------------------------
-------------------------------------------------
(in Soles)
-------------------------------------------------
-------------------------------------------------
Sales 4,075.00
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Utility
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5. SELF-ASSESSMENT
1. In a cost accumulation system for specific orders, the consumption of materials in each
order is established as:
b. Reception Report.
2. A representative company of the cost accumulation system for specific orders would be
one that is dedicated to:
d. Cost of Sale.
5. Company XYZ C. A calculated the predetermined rate at 150% of the direct material cost,
to apply indirect costs to production orders you need to know:
to. The costs of materials, labor and Indirect Costs of products that are unfinished as of a
given date must be totaled.
b. The costs of materials, labor and Indirect Costs of products that are unsold on a given date
must be totaled.
c. The information from the Cost Sheet for Specific Orders must be reflected in the Finished
Goods Inventory Card of the finished product and then filed.
d. The factory must be notified to send the finished products to the Warehouse.
7. In the order-based system, the source document for accumulating costs is called
b. Direct labor.
13. The process of charging manufacturing overhead costs to work in process based on a
predetermined application rate that is multiplied by an actual basis is known as:
b. Actual Costing
c. Standard Costing
d. Product Costing
14. XYZ CA Company It has the following information for the period that has just ended:
Hand
CONCLUSIONS
* Costs are essential for any economic activity, since they determine the value of the product,
these in turn are subdivided and each subdivision has its value in different types of
companies.
* Costs have great importance in the decision making of large, medium and small companies.
* It is important to be very clear about the concept of costs, since these are linked to all types
of products.
* The cost system for specific orders is typical of those companies whose process is not
continuous and in which it is possible to identify specific production lots and follow their
trajectory through the different operations until they are transformed into finished products.
* On some occasions these companies that work on demand use elementary budget
calculations to
the work they do. These estimates lead to controlling the cost of a product or batch of
products, whose specifications are established by a client and become the work order.
* The products that are manufactured, whether for warehouse or to order, are identifiable at
all times as belonging to a specific production order.
* A production order is completed and the following ones remain in process in each cost
center.
* The Production Order is the source document of the cost system for specific orders but it
requires other source documents: "The requisition of materials", "A time card and a work
ticket"; and "the manufacturing overhead cost sheet by department"; whose distribution of
the indirect manufacturing costs of the work orders will be made based on a "predetermined
rate."
BIBLIOGRAPHY
MONOGRAFIAS.COM
BOOK COST MANAGEMENT: ACCOUNTING AND CONTROL, Author DON R. HANSEN AND
MARYANNE M. MOWEN. 1.999
BOOK COSTS AND COSTING METHODS, Author ALBERTO ALVAREZ CARDONA AND BLANCA
EUGENIA SANCHEZ ZAPATA, JULY 1998
RESEARCH METHODOLOGY BOOK.- ROBERTO SAMPIERI & COAUTHORS.- MC. GRAW HILL,
SECOND EDITION 1998
SPECIAL REPORT – COST ACCOUNTING AREA, CPCC CARLOS DAVID BERNALDO FAUSTINO.
COST ACCOUNTING II Instructional Modules - Direct costing and analysis of the Cost-Volume-
Profit relationship - UNIVERSIDAD CENTROCCIDENTAL “LISANDRO ALVARADO