Cost Accounting M3-4 Reviewer PDF

Control of production- seeing to it that the different elements incurred, in total and per unit, are in accordance with plans and adopting prompt remedial measures in case there are deviations. Effective control= maximized manufacturing efficiency, reduces unit costs and enables management to attai...

Control of production- seeing to it that the different elements incurred, in total and per unit, are in accordance with plans and adopting prompt remedial measures in case there are deviations. Effective control= maximized manufacturing efficiency, reduces unit costs and enables management to attain desired inventory levels. Control of materials cost requires the use of estimates of materials, in total and per unit. Forms for internal control 1. purchase requisition, 2. purchase order, 3. receiving report, 4. materials requisition, 5. materials ledger cards, 6. returned materials report, 7. scrap report Functions relating to materials may be divided into: a. Purchasing and Receiving b. Storing and Issuing c. Accounting and Valuation Procurement of materials is the job of the purchasing department usually headed by the purchasing agent. The purchasing department should first receive a purchase requisition usually from production department heads or supervisors for procurement of a specified quantity and type of materials and/or supplies. The purchasing agent should have knowledge about the different sources of their materials and supplies and the corresponding purchase prices and terms to be able to choose the best company to deal with. Purchase Requisition - made at least in duplicate - Duplicate copy to requesting employee, Original copy to purchasing department The purchase requisition may originate from anyone of the following: 1. materials custodian/warehouseman 2. materials ledger clerk 3. department head 4. supervisor 5. head of the engineering department 2 purpose of purchase requisition 1. notify the purchasing department 2. fix responsibility for the purchase request Purchase request contains… 1. quantity, 2. description, 3. unit price of the materials being requisitioned. Purchase Order- 5 copies - signed by the purchasing agent, - serves as a written authorization for the vendor/supplier to deliver the specified materials at the designated time and place. - Can be made through other forms of communication - serves as a confirmation and as a source document for both parties The Purchase Order is usually prepared in five (5) copies to be distributed as follows: (VAMPR) 1 - Vendor As an authority to deliver the goods 2 - Accounting To be used in verifying the vendor’s invoice department preparatory to processing the voucher for the payment of the purchase 3 - Materials ledger clerk As a notification that the materials requested are on order 4 - Receiving department As authorization to accept an incoming delivery/ shipment 5 - Purchasing dept As file copy Receiving department’s function 1. accept the deliveries of materials from the supplier, 2. To unpack them, check on the actual quantities received compared with the vendor’s packing lists. 3. Compare the type and the quantities received with those specified in the purchase order to determine if there is any discrepancy.  4. Discover goods received that are damaged while in transit. 5. Make a receiving report RECEIVING REPORT - Shows the purchase order number, the account number to be charged, the name of the supplier, details regarding the shipment, the quantity and the detailed description of the goods received. - Provide space for the written result of inspection Receiving Report- 4 copies The receiving report is usually prepared in four (4) copies, one copy for each of the following: (AMPR) 1 - Accounting dept As notification that the materials ordered have been received 2 - Purchasing dept To supply information about the shipment which might be useful in evaluating the vendor’s performance in sending the materials on schedule 3 - Materials dept Where the receiving report will be checked against the quantities actually delivered to the storeroom 4 - Receiving dept As file copy The receiving report and the invoice are compared to see that materials received meet purchase order specifications as to items, quantities, prices, price extensions, discount and credit terms, shipping instructions, and other possible conditions. This contributes to the effective internal control over materials Payment voucher- prepared by the accounting department is sent to the treasurer / cash department, which issues a check to the vendor. *If the vendor is out of stock or otherwise unable to deliver specified merchandise, an immediate ordering from other sources may be necessary. * Return Shipping Order (RSO)- an authority to the receiving clerk to return the excess to the vendor. - It is usually prepared in duplicate, the original sent to the vendor with the goods and the duplicate as a file copy of the receiving department. ***It may be convenient for a purchaser to pay transportation charges, even though delivered prices are quoted and purchases are not made on this basis (FOB Destination). The amount paid by the purchaser is deducted on the invoice, and the paid freight bill is attached to the invoice as evidence of payment.*** When materials have been transferred from the receiving department to the materials/stores department, responsibility shifts from the receiving clerk to the storeroom clerk/ storekeeper / warehouseman. Storeroom clerk- checks the materials with the accompanying receiving report. - stores the materials in the places indicated Bin card- shows quantities of each type of material received, issued, and on hand. - not part of the accounting records - show the quantities on hand in the storeroom at all times - should agree with the quantities on the materials ledger cards in the accounting department. RR No. is Receiving Report number; MR No. is Materials Requisition number. Materials Requisition (MR) or Stores Requisition- Issuance of materials - A written order to release materials and deliver to the requesting department. - Maybe from a: a. department head b. supervisor c. production control clerk d. foreman The form should clearly state the department or job to be charged and is accomplished in four (4) copies, distributed as follows (AAMR):  1 - Accounting dept To Materials Ledger Clerk as basis for posting on the Materials Ledger Card under “Issued” 2 - Accounting dept To the bookkeeper as basis for recording the issuance of materials 3 - Materials dept As authorization to release materials 4 - Requesting dept As file copy The physical flow of direct materials from the storeroom to the production department is accounted for as a transfer of cost from Materials to the Work in Process. Requisitions are not only used for direct materials issued to the factory. Requisitions are also used in issuing indirect materials or supplies. If the supplies are not used in the factory, supplies are charged to marketing or administrative expense accounts. If used in the factory, then they are charged to the Factory Overhead Control account. Since more timely information is necessary for product costing and customer billing, requisitions are entered into the job cost sheets at daily or weekly intervals. Stock ledger card- kind of record showing the quantities and prices of materials received, issued, and on hand as of a given date. - Prepared when perpetual inventory system is used - Subsidiary ledger for the Materials or Raw Materials account RETURNED MATERIALS SLIP - accompany the return of excess materials to the storeroom from the production area. *happens when materials issued include allowances for spoilage or when the quantity of the production order is reduced after the materials have been issued. * 4th copy- given back to the department returning the materials. 3rd copy- retained by the storekeeper 1st and 2nd copies- sent to the Materials Ledger Clerk for entry in the materials ledger card and the bookkeeper for recording purposes. Purchase invoice received- provides base figures for determining the materials cost to be entered in the inventory records. - subject to adjustment For simplicity, materials are commonly carried at the invoice price paid to the vendor, all acquisition costs are generally charged to factory overhead. The procedure is to record the materials net of the discounts. This is to avoid the inconvenience of recomputing and adjusting the unit costs of the materials in the materials ledger card.