Jerome Lee Nicholson.

Cost accounting, theory and practice online

. (page 14 of 19)
Online LibraryJerome Lee NicholsonCost accounting, theory and practice → online text (page 14 of 19)
Font size
QR-code for this ebook


from the time report summary, with the supplies chargeable
to the various operations, as per report of material delivered,
and with the indirect expenses chargeable to the various
operations as per the analysis of factory expenditures. The



I



SPECIAL ORDER SYSTEM— PROCESS METHOD



213



account is credited from the process card record summary
with the distribution of the total cost when this is charged
to the \\'ork in Process account.

I The Work in Process account is debited with the
i amount of material dehvered to the operating departments
and chargeable to the various orders as per report of
material delivered, and is also debited with the distribution
of the process costs as per the process card recora summary.
The account is credited with the total cost of the finished
orders either of finished stock or part-finished stock, as per
the summary of finished orders, w'hen this is charged to
the respective finished stock accounts. The balance of the
Work in Process account represents the total amount of
work in process, and should agree with the total of the cost
sheets of the uncompleted orders.

The Part-Finished Stock account is debited from the
summary of finished orders with the total amount of the
cost of the finished parts, and is credited either from the
"Summary of Production Order and Cost Sheet" with the
total cost of these finished parts when they are put back
into operation to be completed, or from the register of
sales and costs with the total cost of the finished parts sold.
The balance of the account represents the amount of the
inventory of the part-finished stock, and should agree with
the detailed stock records of the finished parts.

The Finished Stock account is debited from the sum-
mary of finished orders with the total cost of the finished
orders, and is credited from the register of sales and costs
with the total cost of sales. The Finished Stock account
is the controlling account for the finished stock records,
and shows in total what is shown in detail by the finished
stock records, the balance of the account representing the
amount of finished stock on hand.



214



COST ACCOUNTING



It will now be seen that if the factory ledger accounts
have been posted as described, and a list of the balances
of these accounts is prepared, the total of these balances
will be in agreement with the balance of the Factory ac-
count in the general ledger.



\









QENEHAL
ENT


> RECOnos


KNTS


GENERAL LEOQEB ACCOUNTS
AFFECTED




0' Faclorj Aoocr.)

Or AoO.«r,|..p.,.M,




M.|...>l anO Slit.
Otn.r Ea


Bec..»."g, Slor
1^9 B.- Mjte't.l


Rt. Menial


Bill!




Co-rpMalion ol
Sheet.

pi.ei

(2) ChS'O'Kg P

(3) An.lTZ'ng

ej.pef.se

(6) Comp.lal.o
P.ocet.


T.a^slf <"
Fiweneo O.ae'






Or Salei Clastlflcat.or.. ,
Cr Factory Acccr.!-


SMo'-ent •

Enl'.e» upo
Coati.


u.cour,ti if, if.e General ar.d Factor, Ledgere


F.









CHAPTER XVI

PRODUCT SYSTEM BASED ON THE
PRODUCTIVE LABOR METHOD

In the two special order systems the costs are collected
on the production order. In this system the costs are
collected on the production report.

The present system differs from the last two systems de-
scribed in its methods of distributing indirect expense, and
also in the fact that the complete costs are gathered
departmentally and transferred progressively from one
department to another. The costs in this system have no
relation to customers' orders, as the goods are manufactured
and carried in stock, and orders as they come in are filled
from this stock.

Purchase Forms

The following purchase forms are used in the present
system :

Purchase Requisition (Form i)

Purchase Order (Form 2)

These forms are the same as shown in Chapters XIV and
XV, and may be used in this system unchanged.

Report of Material Received (Form 4)

It will be noted that this form is quite different from
that used in Chapters XIV and XV. In many cases, where

215



I



CHAPTER XVI

PRODUCT SYSTEM BASED ON THE
PRODUCTIVE LABOR METHOD

In the two special order systems the costs are collected
on the production order. In this system the costs are
collected on the production report.

The present system differs from the last two systems de-
scribed in its methods of distributing indirect expense, and
also in the fact that the complete costs are gathered
departmentally and transferred progressively from one
department to another. The costs in this system have no
relation to customers' orders, as the goods are manufactured
and carried in stock, and orders as they come in are filled
from this stock.

Purchase Forms

The following purchase forms are used in the present
system :

Purchase Requisition (Form i)
Purchase Order (Form 2)

These forms are the same as shown in Chapters XIV and
XV, and may be used in this system unchanged.

Report of Material Received (Form 4)

It will be noted that this form is quite different from
that used in Chapters XIV and XV. In many cases, where
215



2i6 COST ACCOUNTING

a product system is used, raw material and supplies will be
ordered in large quantities, and in such instances the freight
charges will be considerable. Provision is therefore made
in this form for a complete distribution of freight and other
charges bearing directly on the cost of material.

Under the caption "Article," the lot number, description,
and quantity only are filled out by the receiving clerk, all
other columns being entered in the office. When the entry
is made from this form to the raw stock record, the cost
will be the total cost of the article after the distribution of
charges has been made.

From the information under the caption "Factory
Ledger," the record on the accounts payable voucher will be
made. The entry of material received is made on the raw
stock records, and also on the accounts payable voucher in
conjunction with the invoice.

Accounts Payable Forms

For the present system these forms are as follows :

Accounts Payable Voucher (Form 7)
Register of Accounts Payable (Form 9)

A general explanation of these forms will be found in
Chapter XV.

Stock Record — Raw Material (Form 12)

This form is one of the most complete records used for
raw material stock. As a mere record of raw material
stock received and delivered, it would be unnecessary to
have all the information called for by the form as shown;
but in most cases such additional information is of distinct
value to the management.

The special feature of this record is the provision made



PRODUCT SYSTEM



217



to show amounts of goods ordered, the amount reserved for
some particular purpose, and the amount of stock available
for general manufacturing purposes.

The entries on this record are made from the purchase
order, the material received report, and the report of material
delivered. The information under the caption "Reserved"
comes either from the purchase requisition, purchase order
or some other special source.

Production Order (Form 13)

The "Production Order" in this system is intended only
as an order to the factory to manufacture a certain amount
of goods. A form of this kind should also be used for work
of any description or character performed in the plant, such
as repairs, improvements, building of new machinery, etc.
Costs are charged to such production orders in the same
way as to the regular production order.

Material Requisition (Form 18)

The form presented is intended only to register material
taken from stock according to department, order number or
product chargeable, article and quantity, and as the informa-
tion on these records is transferred to a summary of
material requisitions or reports of material delivered, it is
unnecessary to price the articles on the requisition.

Report of Material Delivered (Form 25)

The material requisitions are summarized on this form
according to department and order number or product
chargeable, the product chargeable being entered from the
material requisition as to classifications of product. The
report is priced, this information being taken from the stock
record of raw material received, and is entered on that
record under the caption "Delivered."



2l8 COST ACCOUNTING

Employees' Time Report (Form 32)

The form of time report selected for presentation here
requires the time to be punched either by the workman or
foreman, or by some one detailed for that purpose.

Across the left end of the card are printed the hours
from 6 to 12 and from i to 7, and the minutes are printed
beneath, with a leeway of ten minutes between each opera-
tion, to provide for recording the finishing time of the
operation just completed, and the beginning time of the new
operation. If necessary, the design may be so ruled as to
reduce this leeway to a minimum of two minutes. Along
the sides of the card are printed the operations of the par-
ticular plant. Where the operations are not numerous, all
operations may be printed on all the cards ; but where there
are a large number it is wise to print departmental cards,
each showing the operations peculiar to its department.

The body of the card calls for the order number, date,
department, employee's number, article, quantity produced,
piece rate, time rate, premium rate, and total time. There
is also provision for waiting time. A form containing only
the order number, department, and labor cost can be used
in this system, if desired.

The information contained on these time reports is trans-
ferred to the pay-roll, and also summarized and posted to
the cost sheet.

Pay-Roil (Form 39)

The pay-roll is used, as in the preceding systems, for
ordinary pay-roll purposes, and also for the distribution of
the labor into direct, indirect, and supervision. The total
of the pay-roll is entered on the accounts payable voucher
for distribution to the factory ledger according to
department and account.



PRODUCT SYSTEM



219



When the pay-roll entry is made from the vouch.er into
the register of accounts payable, it is charged in the
"Factory" column.

Defective Work Report (Form 51)

While the defective work report is presented only in
connection witii the present system, it should be used in
every system, as defective work is common in every plant.
In some plants the labor cost of the defective work is de-
ducted from the pay of the employee, and in very rare
instances the material wasted is also charged to him.

Under the system here discussed, the loss caused by
defective w^ork is a departmental charge against indirect
expenses, the account in the factory ledger usually appearing
under the caption "Defective Work." If any part of the
material is to be used again, a value should be put upon it,
and this amount deducted from the total defective work cost
and charged to the stock records.

Factory Ledger (Form 67)

The factory ledger is used to classify all the details of
factory operations.

A ledger sheet or page is used for each department, and
a number of sheets are used for general operating expenses,
according to the account number. In addition, sheets should
be used for raw material, part-finished, and finished stock,
these giving the controlling accounts for the three classifi-
cations of the stock records.

The entries under "Material" are made from the report
of material delivered, according to department. The in-
formation under "Labor" and "Indirect" is taken from the
accounts payable voucher, according to department. Under
the caption "Total Charges" is shown the total of all ex-
penditures charged to a particular department. Under the



220 COST ACCOUNTING

caption "Credits" will be entered the total of each depart-
mental cost, as shown by the report of production and costs.
The balance as shown by the factory ledger for any
operating department will represent the value of the goods
in process in that particular operating department.

Statement of Factory Expenditures (Form 43)

The purpose of this form is to show the operations of
a factory for a month or cost period. It is especially suit-
able in a system where the productive labor method is used,
for determining the percentage of indirect expense to be
applied to the cost of each order or article.

It would be well in this system to keep an account in
the factory ledger of the indirect expenses, according to de-
partment, charging the total indirect expenses and crediting
the department account each month with the percentage
used on the report of production and costs. These depart-
mental indirect expense accounts will then show to what
extent variations exist between the fixed or arbitrary
percentage and the actual, and will thus be a means of
correcting the fixed percentage to a fair degree of accuracy.

Summary of Production and Costs (Form 54)

The summary of production and costs is used in ascer-
taining the complete departmental costs of an order,
including the indirect expense. Individual reports are used
for each department, and the total costs of each department
are transferred to the succeeding department until the final
operations are completed, when the total costs are trans-
ferred to finished stock. The first department naturally
would have no record under the caption ''Previous Opera-
tions" ; but it should be borne in mind that an article may
be transferred to part-finished stock at the end of an
operation ; and when these part-finished articles are put back



PRODUCT SYSTEM 221

into process for completion their total cost should be entered
on the summary of production and costs under the caption
"Previous Operations." The production reports may be
made daily or weekly, depending on the nature of the
product.

The information for the summary of production and
costs is obtained as follows :

Under the caption ''Material," from the report of
material delivered, and under the caption "Labor," from the
time reports. Under the caption "Indirect," a department
rate is used for calculating the amount on the basis of labor
cost, as shown in the "Labor" column.

In the production report proper, the article, order
number, and quantity columns are filled in by the foreman
of the operating department, all other columns by the cost
clerk. The totals of the material, labor and indirect
columns are posted to the credit of the proper department
account in the factory ledger. When the final form passes
from the last operating department, with all the accumulated
costs recorded, the "Quantity" and "Total" columns are
charged to the finished stock records under the proper
classification.

The fundamental principle of the system, which is to
show at all times the progress of any particular order and
the cost of all orders in process, by departments, is well
illustrated by the summary of production and cost. If one
of these forms is used for comparative costs, according to
department and classification, it will be found of considerable
value to the management.

Stock — Finished Product (Form 59)

An ordinary stock form showing production, sales, and
l)a]ance, could be used in this system instead of the form
shown; but as other information is frequently required in



222



COST ACCOUNTING



connection with finished stock, the design presented here
will be found more useful.

The particular features of this form are the columns
headed "Orders Received," "Orders Cancelled," and
"Unfilled Orders." The information coming under the
caption "Production" is taken from the final departmental
production report just described. The information under
the captions "Orders Received" and "Orders Cancelled" is
obtained from the order department, and the information
under the caption "Unfilled Orders" is calculated on the
form. The information under the caption "Sales" is taken
from the sales sheet, providing the cost of the sales is
entered on the duplicate copy of that record ; otherwise
it is taken from the "Summary of Production and Costs,"
the sales being taken out of stock at cost price.

Other Forms Used

Part-Finished Stock (Form 56)

Inventory Test (Form 60)

Sales Sheet (Form 62)

Credit Certificate (Form 63)

Register of Sales and Costs (Form 64)

Statement of Profit and Loss (Form 68)

Balance Sheet (Form 69)

These forms are of the same general character as those
described in previous chapters.

Explanation of Chart and Summary of Entries

Subsidiary Forms and Records

The forms necessary in collating the information relative
to the authorization and purchase of material and supplies
and the incurring of other expenditures, and also those



i



PRODUCT SYSTEM 223

forms necessary to record the receiving, storing and
requisitioning of raw material, are used in the same manner
as in the two systems previously described. The particular
distinction in recording the information upon the sub-
sidiary records lies in the method of compiling the cost data,
which is done departmentally.

The raw material and supplies delivered to operating
departments are charged from the report of material de-
livered to the summary of production and cost§ of the
various operating departments. In like manner the labor
ct)sts are transferred from the time reports; and the indirect
expenses are distributed upon a fixed basis, and charged
from a previously prepared statement of factory expendi-
tures which shows the percentages to be used in the various
operating departments.

There are only three operating departments used for
illustrative purposes in this chart, but, of course, the same
principle applies regardless of the number of operating
departments, which will be determined by the conditions of
manufacture in the particular plant. The defective work of
j any operating department should be reported on a defective
work report, and transferred from the summary of produc-
tion and costs to a report showing the defective work, and
the disposition of the same. The total cost, as shown by
the summary of production and costs of each department in
turn, is transferred to the succeeding department as opera-
tions progress until the work is completed or is transferred
as part-finished stock.

In case of the manufacture of finished parts, transfers
may be made from either one of the first two operating de-
partments to the part-finished stock record. When these
parts are put back into operation to be completed, they are
transferred from part-finished stock to the proper depart-
ment. When the article has passed through the final



224



COST ACCOUNTING



operating department, which, in the case illustrated, is
Department 3, its total cost is transferred, by means of the
summary of production and costs, to the finished stock
records, according to classification.

The subsidiary forms used to record information as to
the sale and shipment or return of part-finished stock and
finished stock, have been sufihciently described in the previous
systems.

Method of Control

The method of control in this system differs from the
method described in the previous system in that the factory
ledger is made self-balancing. The general ledger accounts
affected in this system are the same as those affected in
the previous one, and are debited and credited in a similar
manner. The accounts kept in the factory ledger are as
follows :

(i) Raw Material

(2) Direct Labor

(3) Accounts with the items composing the
indirect expenses

(4) Accounts with the various operating de-
partments

(5) Part-Finished Stock

(6) Finished Stock

(7) General Ledger Account

(i) The Raw Material account is debited from the
register of accounts payable with the total purchases, and
with any material put back into stock, as obtained from the
defective work report. It is credited with allowances and
with the total raw material delivered to operating depart-
ments, as per the report of material delivered. The Raw



PRODUCT SYSTEM



225



vlaterial account is the controlling account for the raw stock
ecorcls; and the balance of this account should agree with
he total of the balances of the detailed stock records which
epresent the raw material inventory.

(2) The Direct Labor account is debited from the
egister of accounts payable with the total amount of direct
abor, and is credited from the summary of time reports
\rith the distribution of direct labor when same is charged
:o the various operating departments.

(3) The accounts representing items of indirect expense
ire debited from the register of accounts payable with the
imount of expenditures incurred, and are credited with
;he distribution, as per the statement of factory expenditures,
vhen this is charged to the various operating departments.

(4) The accounts with the various operating depart-
nents are debited :

(a) With the total amount of raw material as
per the report of material delivered

(b) With the total amount of direct labor as per
time report summary

(c) With the total amount of indirect expenses,
as per the statement of factory expenditures

(d) With the total cost of any previous opera-
tions upon the article when it is transferred to one
department from a previous department, as per a
summary of department transfers, or with the total
cost of finished stock put back into process to be
completed

The department accounts are credited with the total cost
)f the transfers to a succeeding department, as per the de-
)artment transfers, and with the total cost of defective
vork, as per the defective work report summary, at the time



226 COST ACCOUNTING

this is charged to the Defective Work account. The
department accounts are also credited with the total cost of
finished parts, as per a summary showing the cost of these
finished parts when they are transferred to the Part-
Finished Stock account ; and the final Operating Department
account is credited with the total cost of the finished stock,
as per summary, when it is charged to the Finished Stock
account. The balance of the Operating Department account
represents the cost of the work still in process in each
operating department, and should agree with the detailed
reports of production and costs in each department.

The Defective Work account is charged with the total
cost of defective work from the defective work report sum-
mary, and is credited with the total cost of the raw material
reclaimed and transferred to the raw material records, the
balance of the account being treated as part of the indirect
expenses.

(5) The Part-Finished Stock account is debited with
the total cost of the part-finished stock, as per summary, and
is credited with the total cost of the same when put back
into operation to be completed, and also with the total cost
of finished parts sold, as per the register of sales and costs.
The balance of the account shows the total amount of part-
finished stock on hand, and should agree with the detailed
stock records of part-finished stock.

(6) The Finished Stock account is debited with the
total cost of finished stock, as per summary, and is credited
with the total amount of the cost of the sales, as per the
register of sales and costs. The balance of the account
represents the total amount of finished stock on hand, and
should agree with the total of the balances of the detailed
stock records.

(7) The General Ledger account is debited with the
total cost of the sales, as per the register of sales and costs,













RECORDS
GENEHAL DESCRIPTION






or
ENTRIES JNTS


GENERAL LEDGER ACCOUNTS
AFFECTED






Aulhorizal.on and Purchase

Material and SupDl.e. and incur

Oil.., E.p.nO.lu.65


Or. Factor, Ledger

Or. Accounts Pajaola






R.C....no, Stor.ng and Rtqu.J.tK
R.« Malar.al






Ra. Malarial and Supoiie. perl ''"^

Data on ih, O.partmenlal Summ, No 3
ol Production and Costs.

(1) Cnaro.ng Raw Material, No 3
Laoor Cost and Indirect Eipensei""''

(2) Transle-ng the Cumol,3
Cost Irom One Depanmenl lo > No. 2
Succeeding Dopanment

(3) Reporting Delecti.e Produc No. 2








Trans!,, of Finished Parts
Finished stock to the Slock Rec

Transfer o( Finished Parts No. 2
Operation 3








Shipment and Sale ol Fin.
Stock or Part Finished Stock.

Return ol Finished Stock or
Finished Stock

Entries upon Register of Sale,""
Costs


Or. Sales Classigoations
Cr Faclo^ Ledger






1

Final SUtam.nt.. ''"'^"I '■'"O"

occounu in the General and Factor, Ledgert





PRODUCT SYSTEM



227



when same is credited to the Finished Stock account. The
general ledger account is credited from the register of
accounts payable with the total amount of factory charges,
when these are debited to the accounts with raw material,


1 2 3 4 5 6 7 8 9 10 11 12 14 16 17 18 19

Online LibraryJerome Lee NicholsonCost accounting, theory and practice → online text (page 14 of 19)