Jerome Lee Nicholson.

Cost accounting, theory and practice online

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direct labor and indirect expenses. The balance of the
General Ledger account is generally a credit, and should
agree with the debit balance of the Factory Ledger account
which is kept in the general ledger.



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,
direct labor and indirect expenses. The balance of the
General Ledger account is generally a credit, and should
agree with the debit balance of the Factory Ledger account
which is kept in the general ledger.



CHAPTER XVII

PRODUCT SYSTEM BASED ON
THE MACHINE OR PROCESS METHOD

This system is similar in some respects to that described
in Chapter XV, so far as it relates to the machine or process
method, the principal difference being that this is a product
system, whereas the other is a special order system. Also
its final costs are collated on a separate cost record, instead
of on the production order and cost sheet. The present
system is effective in factories where a standard line is
manufactured, and where the operations are well defined
in their relation to the product.

The operating hours, together with the costs relating to
the machine or process, form the basis of the plan as de-
scribed; but the basis need not necessarily be time, as this
is not always practical. The total number of pounds or
tons, or any other unit of measure, may be used, and the
cost per unit for each operation ascertained. That is, the
basis of a system of this kind may be either time, showing
the cost per hour, or quantity, showing the cost per unit of
measure.

The purchase requisition, purchase order, accounts pay-
able voucher, register of accounts payable, report of material
received, and raw stock record are the same in design for
this system as for the systems previously described.

Production Order (Form 14)

The production order illustrated in this system may also
be used as a material requisition; and for that reason the



PRODUCT SYSTEM— PROCESS METHOD 229

material requisition and its summary are omitted from the
forms described.

Another plan which may be followed where the product
is absolutely standard is the use of an ordinary production
order, in connection with a bill of material (such as shown
in Form 22) instead of the material requisition.

The postings to the raw material records for material
used can be made either from the production order or from
the bill of material, depending on which is the more con-
venient ; and the total cost of the material is charged on the
cost records against the manufactured article or product for
which the material was used.

Employees' Time Report (Form 27)

The time reports provide for the registering of pro-
duction according to operation, and are applicable where the
operator works on a machine, the labor cost being charged
to the machine or process according to the production order
number. In cases where the process cannot be identified
with a particular order number, the time should be charged
against the process and the name of the product.

The time reports should be summarized daily for entry
on the pay-roll, and should be summarized weekly on the
analysis of pay-roll.

Pay-Roil (Form 40)

This form is an ordinary record, used for pay-roll pur-
poses only. It is designed so that the earnings of each
employee may be entered daily.

Analysis of Pay-Roil (Form 36)

This form is used for analyzing the time records, and
shows the productive labor according to time, operations,
department, and order number or product classification. The



230



COST ACCOUNTING



total labor cost is entered on the process card according to
department and operation, and the total labor time, classified
according to the various operations, is entered on the cost
sheet of the article or order chargeable.

Analysis of Factory Expenditures (Form 41)

The "Analysis of Factory Expenditures" is made out
from the accounts representing the indirect expenses which
are kept in the factory ledger. Its purpose is to allocate the
different items to their proper departments. Those classifi-
cations of the indirect expenses which cannot be charged
to any particular department, or are not distributed to the
process card records or power cost and distribution records
of the various machines, may be summarized on this form
and prorated over the various operating departments on
the basis of productive labor cost, or productive labor hours.

Forms for Applying Costs

Process Card Record (Form 45)

Power Cost and Distribution (Form 46)

These forms are described fully in Chapter XV.

Production Report (Form 50)

This form should be made out daily or weekly (as the
conditions in the plant may require) by each operating de-
partment according to order number or class of product.
It shows the total production of each operating department
according to operations.

The form also provides for costing the material of the
production, the information being taken from either the
factory order or the bill of material, if one is in use.

The total production for each operation is transferred at
the end of the month to the cost sheet, under the caption



k



PRODUCT SYSTEM-PROCESS METHOD 23 1

"Production," according to the article produced, and is
entered in the proper column showing the production,
according to operation or department.

Cost Sheet (Form 53)

This form is intended to be the final cost record of pro-
duction. The costs may be kept by article or by product, a
separate sheet being used for each classification.

The information under the caption "Production" and
"Quantity" is taken, according to operations or depart-
ments, from the production report. The information un-
der the caption "Hours" and "Minutes," is obtained from
the analysis of pay-roll, according to operations.

The process rate per hour is obtained from the process
card record. By multiplying the number of hours by the
rate per hour, the process cost will be shown. The material
cost will then be entered from the production order, and the
total cost of the production shown. As these records are
intended to be compiled departmentally, /. c, by operating
department, they should be summarized on the same form
to obtain the complete cost of the production, w-hich will
then be transferred to the stock sheets of finished product.

Other Forms Employed

The following forms which have already been described
are necessary to complete the system :

Finished Stock Record (Form 59)
Part-Finished Stock (Form 56)
Inventory Test (Form 60)
Sales Sheet (Form 62)
Credit Certificate (Form 63)
Register of Sales and Costs (Form 64)
Profit and Loss Statement (Form 68)
Balance Sheet (Form 69)



232 COST ACCOUNTING

Explanation of Chart and Summary of Entries

Subsidiary Forms and Records

The purchase requisition, purchase order, invoice,
accounts payable voucher, register of accounts payable, re-
port of material received, and raw stock record are used in
tlie same manner as in the preceding system for the purpose
of showing the authorization, purchase, receiving and
storing of material and supplies, and the incurring of other
expenditures.

The subsidiary records used for compiling the cost data
are as follows :

(i) Production Order and Material Requisition

(2) Time Reports

(3) Analysis of Pay-Roll

(4) Analysis of Factory Expenditures

(5) Power Costs and Distribution

(6) Process Card Record

(7) Production Report

(8) Cost Sheet

The information upon the production order and material
requisition is transferred to the cost sheet to show the cost
of material going into process. The supplies are transferred
either to the power costs and distribution or the process
card record.

The time reports are entered upon the pay-roll for pay-
roll purposes, and the analysis of the pay-roll is then attached
to the accounts payable voucher for entry upon the register
of accounts payable. The time reports are also entered upon
the analysis of pay-roll, from which the information goes
to either the power costs and distribution sheet or the process



PRODUCT SYSTEM— PROCESS METHOD



233



card record. The productive labor time is entered upon the
cost sheets.

The information upon the analysis of factory expendi-
tures is transferred either to the process card records or to
the power costs and distribution record, and after the power
costs are distributed and entered upon the process card
records, the information upon the process card records is
transferred to the cost sheets.

The production report shows the amount of production,
which is transferred to the cost sheets.

It will be seen that the cost sheet summarizes the elements
of costs and production as follows :

(a) Material cost, from the production order

(b) The cost of productive labor and indirect
expense, from the process card records

(c) The productive labor time on the article,
from the analysis of pay-roll

(d) The quantity of the production, from the
production report

The method of recording information relative to the
transfer of finished articles and finished parts to the stock
records, and also the method of transferring part-finished
stock back into operation to be completed, has already been
described. The method of recording shipments and sale
of finished stock and part-finished stock, and also of any
return of stock, has likewise been described.

Method of Control

The method of control of the cost records by the
financial records is the same as used in the previous system,
the general ledger accounts affected being the same. The
accounts which are kept in the factory ledger are as follows :



234 COST ACCOUNTING

( 1 ) Raw Material and Supplies

(2) Direct Labor

(3) Accounts with the items composing the
indirect expenses

(4) Power Cost

(5) Process Cost

(6) Work in Process

(7) Part-Finished Stock

(8) Finished Stock

(9) General ledger

(i) The Raw Material account is debited from the
register of accounts payable with the total purchases, and
is credited with allowances and with the total raw material
and supplies delivered to operating departments, as per the
production order summary. This summary shows the total
material charged against the various articles upon the cost
sheets, as per the summary of material requisitions, which in
turn shows the supplies delivered and chargeable to the
various machines and processes. The balance of the Raw
Material account should agree with the total balances of
the detailed stock records which represent raw material
inventory.

(2) The Direct Labor account is debited from the
register of accounts payable with the total amount of direct
labor, and is credited from the analysis of pay-roll summary
with the distribution of direct labor, when same is charge-
able either to Power Cost or Process Cost account.

(3) The accounts representing the items of indirect
expense are debited from the register of accounts payable
with the amount of expenditures incurred, and are credited
from the analysis of factory expenditures when expenditures
are charged either to the Power Cost or Process Cost
accounts.



PRODUCT SYSTEM— PROCESS METHOD



235



(4) The Power Cost account is debited with

(a) The total suppHes chargeable, as per sum-
mary of material requisitions

(b) The total direct labor chargeable, as per the
analysis of pay-roll summary

(c) The total indirect expenses chargeable, as
per the analysis of factory expenditures

The Power Cost account is credited with the distribution
of the power cost when same is charged to the process cost
account.

(5) The Process Cost account is debited with

(a) The total supplies chargeable, as per sum-
mary of material requisitions

(b) The total direct labor chargeable, as per
analysis of pay-roll summary

(c) The total indirect expenses chargeable, as per
analysis of factory expenditures

(d) The total cost of the power distributed, as
per the power costs and distribution summary

The Process Cost account is credited with the total cost
of the labor and indirect expenses distributed, chargeable
to the Work in Process account.

(6) The Work in Process account is debited with

(a) The total cost of the material, as per the
production order summary

(b) The process costs, as per the process card
record summary

(c) The total cost of part-finished stock which
has been put into operation to be completed

The Work in Process account is credited from the
summary of cost sheets with the total costs of part-finished
stock and finished stock wdien these are debited to the proper
account. The balance of the Work in Process account
should agree with the total balance of the cost sheets for



236 COST ACCOUNTING

the articles or product still in process, and represents the
inventory of the work in process.

The Part-Finished Stock, Finished Stock and General
Ledger accounts are kept in the same manner as in the
previous system and need no further explanation.



J^ . — .1

SI RECORDS


ENTRIES lUNTS


GENERAL LEDGER ACCOUNTS
AFFECTED


•ulhOfiLtior, ird Pu.ch.s. ol

Walcial .nd Supplies •od iicu.rino

Ottlet Eiptndilurcs


Dr Factory Ledger

Cr. Account, Payable


in aelaii
Race'.!rtg and Storing Raw Mataiial






flaw Malarial pul irito Opearllcn and ^"O"'""
Co-npllalioi. ol Coal Data on Ih. Coll
Sheel

(1) Chn-Dlna Ra. Material and Sup. S-PP'""

(2) Charjing Productive Labor Cost

ar.« Tim,.

(3) An.l„lng and Cftafjlrj (rdlrecl

(4) Compiling and Ol3lrlbuli;lJ Pov«ol

Co.H

(5) Comoiling «nd Oi»»botina Pro-

oaaa Costa




Translar ol Finieh.d Paris and
Finisr.e<. Slock to Iho Slock Record,

Tranale. ol finished Paris into
Operation ;k




Cr. Factor, Ledger Accouot


Sblpmani and Sal. 01 r.n.sn.d
stock 0, Pan Finiabed Slook

Return ol Finished SIOCH or Pari k
Finisheo Stock Stock

Entries upon Resitler ol Sales and
Cosia

1








-"- — —•



f



FORMS



CHAPTER XVIII

FORMS RELATING TO MATERIAL

The forms which appear in the following pages are dis-
cussed in, and illustrate the text of the volume. As, how-
ever, they will at times be considered apart from the text, a
few words of explanation may be useful.

In many cases, forms of the same class appear to be
alike, save as to slight variations in ruling or arrangement.
For the most part these differences are merely suggestive
as showing the possibilities of detail changes. It is not well,
however, to take their unimportance for granted, as a careful
scrutiny will show that, in some cases at least, the variations
are material, having the effect of adapting the form to some
particular condition or kind of manufacture.

In designing forms it should be borne in mind that it is
hardly possible to gather cost information for one purpose
without at the same time procuring information that can be
utilized in other w^ays. As an illustration, it would not be
possible to obtain a list of the material used in manufactur-
ing, chargeable to an order or process, without at the same
time gathering information necessary for the stock records.
When, therefore, by a few trifling additions to a form the
information recorded upon it can be made available for all
tlie purposes for which such information is needed, the sav-
ing in time and labor is obvious.

No standard size is given for the illustrative forms, nor
is it necessary to have the exact number of lines or columns
shown. These details will depend entirely on the nature
and volume of the business for which the form is devised,
and the character of the information to be preserved.
237



238



COST ACCOUNTING



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247



ACCOUNTS PAYABLE VOUCHER



No. _.
Favor of Date.



DESCRIPTION



DEDUCTIONS



Approved for Payment



Correct



Form ya. Accounts Payable Voucher {face).
{See pages 103, 201.)



248



COST ACCOUNTING



ACCOUNTS PAYABLE VOUCHER
Date No

Favor of

Address



FACTORY LEDGER



DEPT. A/pNo



GENERAL LEDGER



Date Paid
Amount of Check
Deductions
Amount of Invoice



Check No.

$

$



CLASSIFICATION OF
ACCOUNTS

OPERATING ACCOUNTS



1 Material


2 Direct Labor


3 Indirect Labor


4 Supervision


5 Supplies


6 Liaht, Heat and Power


7 Freight, Express and
Cartage


8 Maintenance


9 Incidentals


10 Insurance


11 Taxes


12 Telegraphing and
Telephoning


13 Postage, Printing and
Stationery


14 Salaries


15 Depreciation


16 Advertising


17 Traveling Expenses


18 Commissions


19 Legal Expenses


20 Interest


21 Merchandise Dis-
counts


22 Doubtful Accounts


23 Rent


DCPARTMENTS


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Form yh. Accounts Payable Voucher {reverse).
(See pages 103, 201.)



FORMS RELATING TO MATERIAL



249



ACCOUNTS PAYABLE VOUCHER



No. _.
Favor of Date.



DESCRIPTION



DEDUCTIONS



Approved for Payment



Form 8a. Accounts Payable Voucher {face).
^Sec page 103.)



250



COST ACCOUNTING



ACCOUNTS PAYABLE VOUCHER

Date No

Favor of

Address



FACTORY ANALYSIS



U-



GENERAL LEDGER



Date Paid
Amount of Check
Deductions
Amount of Invoice



Check No.

$

$

$



CLASSIFICATION OF
ACCOUNTS

FACTORY ANALYSIS

1 Material

2 Direct Labor

3 Indirect Labor

4 Supervision

5 Supplies

6 Light, Heatand Power

7 Maintenance

8 Insurance
9Taxes and Water

Rents

10 Salaries of Factory

Clerks

11 Incidentals

12 Depreciation

13 Interest

14 Rent



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Form 8b. Accounts Payable Voucher (reverse).
(See page 103.)









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253



STOCK



Card No.



Article



Classification No.

Maximum

Minimum



QUANTITY



ORDERED RECEIVED DELIVERED



RATE AMOUNT



Form 10. Raii' Material Stock Record.
{See pages 84, 189, 202.)



254



COST ACCOUNTING









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Online LibraryJerome Lee NicholsonCost accounting, theory and practice → online text (page 15 of 19)