MATERIALS COSTING FNSACC507A Provide Management Accounting - - PowerPoint PPT Presentation
Week 4 Chapter 4 MATERIALS COSTING FNSACC507A Provide Management Accounting Information In this lesson you will learn 1. About the documents used to cost and control factory materials. 2. How to prepare accounting records from these
FNSACC507A Provide Management Accounting Information
control factory materials.
these documents.
ACCOUNT FOR MATERIAL COSTS
Prepare a stock card to record transactions
accounted for using both a perpetual and a periodic inventory recording system and both the F.I.F.O. and Weighted Average inventory valuation methods.
Prepare all relevant GJ entries.
WORK IN PROGRESS MATERIALS LABOUR OVERHEADS FINISHED GOODS
(materials + labour)
DIRECT INDIRECT
Can be easily and conveniently traced to a particular cost object (in this case, a particular job order). Cannot be easily and conveniently traced to a particular cost object (in this case, a particular job order). Classified as factory overhead and allocated to production via a predetermined overhead rate. e.g. wood used to make wooden furniture e.g. nails & glue used to assemble wooden furniture; factory supervisor’s salary
1.
Accounting for materials
2.
Raw materials cycle
3.
Material-related costs
4.
Costing material requisitions/issues
5.
Stocktaking
Raw materials are a necessary input into the
production process.
Our focus will be on accounting for the costs
associated with the acquisition, storage and usage
finished product.
Storeroom puts in request with Purchasing department for materials to be ordered à purchase requisition Production department requests materials to be issued to production à materials requisition form Purchasing department orders materials from supplier à purchase order Goods ordered are received and checked by Receiving department à receiving report (given to Purchasing department and Accounts Payable) à supplier invoice (to finalise purchase transaction & authorise payment of supplier invoice, PR, PO and RR need to be matched and reconciled with SI.
In accounting for materials, there are two (2) main activities:
All material movements in a factory need to be supported by appropriately authorised documentation.
Return of materials to supplier à debit note (issued by purchaser) + credit note (issued by supplier) Return of materials to storeroom à materials returned to store form Material transfers e.g. from JOB1 to JOB2 à materials transfer note
In accounting for materials, there are some adjustments that may need to be made:
All material movements in a factory need to be supported by appropriately authorised documentation.
e.g. Freight in; Discount received (on purchases)
Accounting for material-related costs: OPTION 1: à Include as part of final unit cost of material purchased
accounted for as part of prime cost of production most accurate costing method
OPTION 2: à Include in factory overhead (which is indirectly applied to production via predetermined overhead rate).
The purchase price of our materials fluctuate over
time which means that our inventory of raw materials may contain identical items acquired at different prices.
Issues of direct and indirect materials to production
need to be costed so that we can work out the final cost per unit of production.
Therefore, we need to select a method for costing
material requisitions.
We have a few options…
Inventory recording systems:
Perpetual inventory system Periodic inventory system
Inventory costing (valuation) methods:
(within each recording system)
F.I.F.O. (first in, first out) method Weighted average method
PERPETUAL PERIODIC
continuously tracked.
enable the balance of inventory
any time. Movements in inventory are NOT continuously tracked. They are only determined at the end of the accounting period.
PERPETUAL PERIODIC An individual record is kept for each inventory item showing: à quantity + value purchased à quantity + value issued to production à balance of inventory on hand after each transaction A record is maintained of:
(from physical stocktake records)
(from supplier invoice)
(from physical stocktake records) Under this method, cost of materials issued not directly determined. Material usage (in units and dollars) =
+ Purchases = Materials avail. for use – Cl. balance Impossible to determine whether a stock difference occurred during the period.
AASB102 – Valuation & Presentation of Inventories
Inventories should be valued at LOWER of
COST or NET REALISABLE VALUE.
Any of the four (4) costing methods specified by the
standard can be used to assign costs to inventories provided it is:
* Appropriate given the circumstances * Applied consistently from one period to the next
We are going to focus on the use of the
F.I.F.O. and Weighted Average methods.
To check accuracy of perpetual records. Variances due to recording errors, theft,
shrinkage etc.
Perpetual records must be adjusted to match
physical count.
To determine opening and closing
balances of inventory.
Optional extra reading:
Open the following document: WEEK 4_FNSACC507A_Management Accounting_LESSON 4 Additional Reading 1_AASB102 Fact Sheet
Open the following document: WEEK 4_FNSACC507A_Management Accounting_LESSON 4 Additional Reading 2_Inventory Shrinkage
Accounting for MATERIALS (WEEK 4)
NOTE TO STUDENTS: Before moving on to the next slide, please open and work through the following document now: WEEK 4_FNSACC507A_Management Accounting_WORKED EXAMPLES
Read chapter 4 à Materials (p.168 to p.194) Complete homework questions (chapter 4)
(ref. STUDENT ONLINE STUDY GUIDE)
CHAPTER 4
CHAPTER 5