Controlling and Costing Materials
Controlling and costing materials includes when goods are used in manufacturing and production. Controlling and costing materials describes that usage of material and prices should be controlled. Controlling and costing materials also aims to provide customers with reasonable price material as well.
These are two different methods of accounting that are used in different circumstances and situations. The equity method of accounting is used when the influence and control of the firm is more over the investment. That means owner’s equity is about 20 to 50
Product cost –includes costs incurred– for manufacturing or for purchasing goods. In case of manufacturing business product cost consists of direct materials, direct labour and factory overhead. In case of trading business, product cost involves purchase price plus transportation in plus other costs associated with
Purchase of Supplies, Services, and Repairs: Learning Objective of the article: Explain the procedure of Purchasing supplies, services and repairs. The procedure followed in purchasing productive materials should apply to all departments and divisions of a business. Purchase requisitions, purchase orders, and receiving reports
Purchase of Productive Materials: Learning Objective: Explain the procedure of purchasing productive materials. The actual purchase of all materials is usually made by the purchasing department headed by a general purchasing agent. In some small and medium size companies, however, department heads or supervisors
Storage and Use of Materials: Materials, together with copy of the receiving report, or forwarded to the storeroom from the receiving or inspection department. The storekeeper and assistants are responsible for safeguarding the materials, which means that materials and supplies are placed in proper
Materials Purchasing Forms: The principle forms required in purchasing are the purchase requisition form and the purchase order form. Purchase Requisition Form: The purchase requisition originates with (1) stores or where house clerk who observes that quantity on hand is at a set ordering
Transfer of Materials Cost to Finished Production–Inventory Valuation: The ultimate, intended destination of direct materials is finished products or finished goods delivered to customers. The cost of materials used on each job or in each department is transferred from the materials requisition to the
Requirements of a System of Materials Control: The important requirements or essentials of adequate satisfactory system of materials control are as follows: Proper Coordination Competent Purchasing Agent Use of Standard Forms Control by Budgeting Materials and Equipment Storage Location Operation of Perpetual Inventory Standards
Cost Accounting Procedure for Spoiled Goods: Cost accounting should provide product costs and cost control information. In the case of spoilage, the first requirement is to know the nature and cause of the spoiled units. The second requirement, the accounting problem is to record
Re-order Level or Ordering Point or Ordering Level: Definition and explanation of re-order point Formula of re-order level or ordering point Examples Definition and explanation: This is that level of materials at which a new order for supply of materials is to be placed.
Receiving Materials: The function of the receiving department is to: unload and unpack incoming materials; check quantities received against the shippers packing list; identify goods received with descriptions on the purchase order; prepare a receiving report; notify the purchasing department of descriptions discovered; arrange
Cost Accounting Procedure for Scrap and Waste: (Scrap Accounting) In many manufacturing processes, waste and scrap result from: The processing of materials. Defective and broken parts. Absolute stock. Revisions or abandonment of experimental projects. Worn out or absolute machinery. This scrap should be collected
Physical Inventory – Inventory Valuation: Even with a perpetual inventory system, periodic physical counts are necessary to discover and eliminate description between the actual count and the balances on materials ledger card. These descriptions may be due to: Errors on transferring invoice data to
Other Materials Costing Methods – Month End Average Cost | Market Price at Date of Issue | Standard Cost: Although first in first out (FIFO), average cost, and last in first out (LIFO) are commonly used methods of costing materials units into work in
Minimum Limit or Minimum Level of Stock: Learning Objective: Definite and explain minimum limit or minimum level of stock. How is minimum limit or minimum level calculated? Definition and Explanation: The minimum level or minimum stock is that level of stock below which stock
Maximum Level or Maximum Limit of Stock: Learning Objective: Definite and explain maximum limit or maximum level of stock. How is maximum limit or maximum level calculated? Definition and Explanation: The maximum stock limit is upper level of the inventory and the quantity that
Materials Ledger Card–Perpetual Inventory: As purchased materials go through the systematic verification of quantities, prices, physical condition, and other checks, the crux of the accounting procedure is to establish a perpetual inventory – maintaining for each type of material a record showing quantities and
Last In First Out (LIFO) – Materials and Inventory Costing Method: Learning Objectives: Define and explain last in first out (LIFO) method. Give an example of LIFO costing method What are advantages and disadvantages of LIFO method? Definition and explanation of LIFO method Example