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Henry Julius Lunt.

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the value of the material in its final form may be used as a
guide and the original cost may be apportioned accordingly.

Financial Books.

In the financial books the accounts should be framed
on the plan illustrated. A Manufacturing Account is
debited with material, wages and factory oncost and
credited with finished goods at factory cost. The
Finished Stores Account is debited with the same total
for goods manufactured ; and the balance of this account,
allowing for increase or decrease in stock, gives the cost
of goods sold. This amount will be debited, along with
any oncost balances, from Oncost Adjustment Account
to a monthly Trading Account.



120 MANUAL OF COST ACCOUNTS

The following Journal entries will make this clearer

OCTOBER 31ST, 19..

s. d. s. d. i s. d.
Manufacturing Account Dr. 4,194 - -

To Purchases Account
for (a) direct pur-
chases per Invoice
Analysis Book . . 742 - -

(6) Stores Issued per
Stores Issued Book . 1,158 - -

1,900

To Chargeable Expense
Account for disburse-
ments chargeable to
Customers per Petty

Cash Analysis. . . 35 - -

To Productive Wages
Account for total per

Wages Summaries . 972 - -

To Factory Expense
Allocation Account
for Expenses charged
to Cost Ledger

Shop No. 1 ... 574 - -
No. 2. . . 246 - -
No. 3. . . 376 - -
No. 4. . . 91 - -

1,287 - -
per Oncost Summary.

Finished Stock Account Dr. 4,436 -

To Manufacturing Ac-
count for completed
work per Cost Ledger

Summary .... 4,436 -

Trading Account Dr. 5,261 - -

To Finished Stock Ac-
count for value of
Goods sold . . . 5,236 - -

To Oncost Adjustment
Account for balance
of Expenses not
charged to Contracts . 25 - -

Corresponding entries in the Cost Journal will maintain
a double entry system in the Cost Accounts and harmonize
the Cost and Financial Books. In the Cost Journal
the first two entries only are required, and in place of
Manufacturing Account, the Sundry Contracts per



THE COST LEDGER



121



Cost Ledger Summary will be debited and credited
respectively

Sundry Contracts Dr.

To Purchases.

Chargeable Expenses.
Productive Wages.
Factory Expense.

Finished Stock Account Dr.

To Sundry Contracts.

In place of the debits to Finished Stock Account (in
both Journals) there will be debits to Sales Repairs
Accounts for repair orders for customers ; Works Repairs
or Plant Repairs Account and Works Extensions or
Plant Extensions Account for completed Works Orders
representing work done on account of the factory.

The Cost Journal is also useful for transfers when
required from one Cost Account to another.



Dr. WORK-IN-PROGRESS OR MANUFACTURING ACCOUNT.


Cr.


19..


s. d.


19..





s. d.


Oct. 31


To Work in Progress 1,784 - -
Material . . 1,900 - -
Disbursements 35 - -


Oct. 31


By Work in Progress
carried forward 1,302
Finished Goods






,, Labour . . . 972 - -




Account . 4,436


_ _


" t


Factory Oncost :


M


, Plant and






No. 1 Shop . 574 - -




Machinery






No. 2 Shop . 246 - -




Additions . 240


_ _




No. 3 Shop . 376 - -










No. 4 Shop . 91 - -










5,978 - -




5,978




Dr. ONCOST ADJUSTMENT ACCOUNT.


Cr.


19..


d.


19..





s. d.


Oct. 31


To Balance :


Oct. 31


By Balance :






No. 1 Shop . 115 - -




No. 2 Shop 20


_ _






M


No. 3 Shop 55


_ _








No. 4 Shop 15


_ _






',',


TradingAccount 25


- -




115 - -




115

< - .-=, -a


__


Dr. No. 1 SHOP ONCOST ACCOUNT.


Cr.


19..


s. d.


19..





s. d.


Oct. 31


To Rent and Rates 55 - -


Oct. 31


By Manufacturing




99


Heating and




Account, 4,592






Lighting . 37 - -




hours @ 2/6 574


_




Power . . 149 - -




Oncost Adjust-




M


Indirect Wages 125 - -




ment Account 115


_ _


"


Insurance . 34 - -










Repairs . 24 - -










Depreciation 70 - -








,


General Factory










Oncost . . 145 - -








,,


Sundry Expenses










and Sundry










Stores . . 50 - -










689 -




689 - -



122



MANUAL OF COST ACCOUNTS



Dr.

19..
Oct. 1
31



To Stocks on Hand 1,530 - -
Manufacturing
Account (Cost
of Goods Manu-
factured) . 4,436 - -



FINISHED STOCK ACCOUNT.
19..



5,966 - -



Oct. 31



Cr.

s. d.



By Trading Account



(Cost of Sales) 5,236 - -
Stocks on Hand 730 - -



TRADING ACCOUNT.
FOR THE MONTH ENDING 31ST OCTOBER, 19..



By Sales .
To Sales Returns
Allowances



s. d.
357 - -



Net Sales ....

Less Cost of Sales

Oncost Adjustment Account



Gross Profit

To Office Expenses

Salesmen .

Advertising

Office Salaries .

Discount

General Expenses

Bad Debts



5,236
25



Net Profit



403
200
267
135
271
15



5,966 - -

sc=sx=

7,450 - -

393 -

7,057 - -

5,261 - -

1,796 - -



,1,291
505



Work-in-Progress is the name given to uncompleted
contracts of a contractor at any time or the work in hand of
a manufacturer. At stocktaking time it must be valued at
Works Cost. (See notes on Contractor's Accounts, pages
5 and 43).

Work -in -Progress Account.

A Work-in-Progress Account (also referred to as a
Manufacturing or Cost Ledger Account) in the financial
books will take the form of a controlling account for the
Cost Ledger. All the items debited to the individual cost
accounts form part of the totals which are debited month
by month to the Work-in-Progress Account. Against
these debits there will naturally be credits in the financial
accounts to wages, stores, oncost, etc. The account will
be credited with works cost of completed work transferred
direct to Trading Account or Finished Stores.

Where this system is carried out it seems unnecessary to
use a double entry form of accounts in the Cost Ledger



THE COST LEDGER



123



itself. The Cost Ledger will become a detailed record
similar to a Sales Ledger or Purchase Ledger where there is
in the General Ledger a controlling account in the shape of
a Bought Ledger Aggregate Account and Sales Ledger
Aggregate Account. At the same time it is essential for
stocktaking purposes that details of the Cost Ledger
Accounts should be summarized and the total agreed with
the balance of the Work-in-Progress Account in the financial
books ; and any difference arising must naturally be traced
if possible or written off. Further there should be an
inventory taken of the actual work in progress on the
floor of the shops from which the Cost Accounts can be
controlled.

Double Entry in the Cost Ledger.

A Cost Journal is useful for recording weekly total
postings, passing closing entries and transfer entries ; and
by its use the Cost Ledger may be kept on Double Entry

SUMMARY OF COST JOURNAL ENTRIES
AND COMPARISON WITH FINANCIAL BOOKS.



COST LEDGER.



Wases



Dr.

Cost Account
(in detail)



Cr.

Work-in-Progress
or Manufacturing
Account



FINANCIAL ACCOUNTS.
Dr. Cr.

Manufac- Productive Wagrx

turing Account

Account



Special Cost Account


Supplier


Purchases . (in detail)




Stores . Cost Account


r; Purchases Account


(in detail)




Disbursements Cost Account


,, Chargeable


(in detail)


Expenses Account


Expenses . Cost Account


{ General Expense


(i.e.. Oncost) (in detail)


(or Oncost) A/c
General


Oncost on Oncost Sus-


Expense (or Expense Accounts
Oncost) A/c (in detail)


Work-in-Pro- pense A/c '.-.


Oncost General Expense


gress . .


Suspense Account


CLOSING ENTREES.


Account


Sales Orders




Trading Account




Sales Repair








Orders








Building and


Manufacturing Cost Accounts




Manufacturing


Plant Repairs


Account (in detail)


Repairs Account


Account


Building and








Plant




Plant, etc. Account




Additions








Stock Orders




Stores Account




Tool Orders




Tools Account






or




Repairs Account



9 (1765)



124 MANUAL OF COST ACCOUNTS

lines. This method is useful when the financial accounts
are not adapted so as to conform to the Cost Ledger method
in the use of a Work-in-Progress Account.

Entries reconciling difference between actual expenses
and oncost charged ; or difference between Cost Ledger
profit and Profit and Loss Account profit so far as made
up of the same factors (i.e. excluding Investment Income
received, etc.).

TRADING ACCOUNT * GENERAL
Dr. or Cr. for dif- EXPENSES
ference in Works ACCOUNT
Oncost Cr. or Dr.

PROFIT AND Loss
ACCOUNT
Dr. or Cr. for dif-
ference in Office
Oncost

Monthly Summary.

A Monthly Summary is abstracted in detail form.
This summary shows :

(1) Total of completed work ; grouped in sections accord-
ing to arrangement of Cost Ledger Accounts ; and showing
details of expenditure on each order number.

(2) Total of Work-in-Progress for balancing with
financial accounts ; the financial accounts Work-in-Progress
Account may be arranged in corresponding sections and
balancing is thus facilitated.

(3) When the General Oncost and Profits are not shown
in the Cost Ledger (as is often desired for reasons of privacy)
the summary provides : means for ascertaining whether
the margins on each contract are sufficient to cover admin-
istration expense and amount of profit on each. This
requires a definite percentage on Factory Cost which can
be checked month by month from the Counting House
Nominal Ledger Summary of Expenses, and inquiry is
at once possible in cases where the requisite percentage is
not reached.

The Cost Accounts should also be systematically checked
with the estimates on completion of each account, to



II J



1 t



1 1 1



e i i



ass



3

i>. 10



126 MANUAL OF COST ACCOUNTS

discover errors by under or over-estimating and to inquire
into all unsatisfactory results.

Multiple Costs by Analytical Methods.

In many businesses, owing to the detail in costing, it is
preferable to compile the cost sheet for each batch or
order as the work proceeds through its various stages.
The initial entries are made use of for this purpose by
assembling them on a work ticket for each job.

A work ticket is provided, on which the different stages
of manufacture and list of essential materials will be
printed. This ticket proceeds with the work round the
departments and at each stage when material is issued the
storekeeper enters particulars and value. Similarly the
wage for each process is entered as it is completed.

Oncost is added to wage recorded by means of a per-
centage ; or a series of rates is used for different depart-
ments ; and in some cases a portion of the oncost is
allocated to material and added as a percentage to each
item of material used.

The records then obtained consist of a series of results
appertaining to individual orders and these will require
to be reconciled with the financial accounts to ensure that
the results are not merely approximate and of the nature
of estimates : to effect this the cost tickets for all completed
work must be summarized weekly to arrive at the total of
materials charged ; wages charged ; and oncost added.
This summary will then be comparable with the financial
records.

This method is suitable for clothing factories ; glove
making ; boots and shoes ; hosiery ; furniture, and many
other similar trades.

In the printing trades a special method based on this
principle is used, the oncost on material being especially
to cover cost of maintaining purchase department, ware-
housing and handling of paper, etc., and the rates of oncost
being subdivided in the form of machine rates for work



THE COST LEDGER



127



done and departmental shop rates on wages to cover
expenses in each department.

Manufacture of Gloves Multiple Costs.

The Cost Cards illustrated (Forms 1 and 2) are issued
with the orders in the factory, and the records of material
are entered thereon by the storekeeper and wages by the

MULTIPLE COSTS : GLOVES.
FORM 1.-



COST CAR


D OF F. 1 GLO

Material
and Wages.


VES.


Expense.







5.


d. %


s.


d.


Date 155














Quantity 50 doz. prs.
Description Ladies, H_
















uality Best
















olour Grey
















1 Material
















100 sq. yds


45


-


-


10


4


10


-


2 Cotton.


1


10













3 Buttons


1


10


_










4 Button Pieces


1


_


_


20


1


_


_


5 Bands and Pins .




10


_










6 Boxes ....




10


-










Labour
















A Cutting


1


_


_










B Sizing ....




10


_










C End Tying .




10


_










D Buttoning & Paring Binds




15


-


so


2


7


6


E Tacking




7


_










F Laying-out .


1


5


-










G Boxing and Banding




8


-










H Slitting




10


_










I Pointing


1


_


_










J Sewing.
K Buttonholing (2-button) .


5
1


10


-


150


15


7


6


L Binding


2


5


-




-






Prime Cost


65


_


_




23


5


_












65


-


-


Cost of Production .










88


5


_



128



MANUAL OF COST ACCOUNTS



MULTIPLE COSTS : GLOVES.
FORM 2.



COST CARD FOR L.l GLOVES.


Date 15.5


Quantity 20 doz
Description Motor Gauntlets


Quality First
Material 20 doz. skins....


Lot No.._33_.


Material
and Wages.




Expense.


1 Gloves


I


s.


d.


%


I


s.


d.


2 Cuffs ....


45


_


_


15


19


13


_


3 Linings


36


-


-










4 Cards ....


1


_


_










5 Wool Linings


10


_


_










6 Cotton


1


5


_


20


3


7


_


7 Elastic.


2


10


_










8 Boxes ....


2


-


-










Labour
















A Cutting


5


_


_










B Sizing and Fitting-up


1


-


-










C Linings


1


5













D Tying Ends .




5


_










E Cutting Cards




10


_










F Linings




10


_


50


8


-


_


G Cuffs


2


_


_










H Pasting Cards


2


_


_










I Laying-out .


1


5


_










J Examining .




15


_










K Tacking




10


_










L Boxing


1


_


_










M Splitting


1


_


_










N Pointing




15


_


150


26


5


_


O Elastic.




15


_










P Sewing and Binding


5


_


_










Q Making


10


_


_










Examined by
















Total Prime Cost
















181


5


_


57


5


_










mi






Cost of Production .








I


IO1






238


10


i mill i ii



a h*2



t 1



9

- s



-2



I



0} O



I



w



12 5



:



it*

Is"
*O



A*



' ' '






^



O 1C

CC (N








8



5



S3O 1C CD

of



\ \ \



' ' '



I \



I 1



1C

CN



1C 1C

3 ^



\ \



\ \












?!






1 1



1 1



1C 1C

cc



I I



11

W







THE COST LEDGER



131



foreman as the work proceeds through various stages till
complete.

Expense Rates are based partly on material and partly
on labour, and these are filled in by the cost clerk. The
cost of production is thus obtained, and is available for
comparison with the selling price.

A weekly summary is made (Form 3, p. 129), and from
this summary a detailed comparison can be made with the
financial records ; wages in each stage of manufacture
can be checked with actual wage paid and costs of material
checked against purchases, or supplies to departments.
The Oncost Expense is similarly totalled and compared.



MULTIPLE COSTS : HOSIERY.
FORM 5.



COST CARD.



Date

Description

Size

Quantity

Colour _.



Lot No

Wool Ibs. ozs.

Sundry Material

Knitter .
Cutter .
Machine .
Twin Needle
Welter .
Button Sewer
Hole
Mender .
Sewing .

Examined by

Total Prime Cost
Cost of Manufacture




132 MANUAL OF COST ACCOUNTS

The totals obtained on the form are carried to Weekly
Cost Sheet (Form 4, p. 130), where a comparative summary
is shown.

Routine in the use of Hosiery Cost Card (Form 5, p. 131)
is exactly similar.

Material, Wages, and Expense under each heading on
this card require summarizing weekly in a general analysis
for comparison with financial records.

The keeping of continuous records may be confined to
the department accounts and department oncost rates ;
in conjunction with special examination of individual
costs at intervals.

What the Cost Accounts Show.

The Cost Accounts will reveal

(a) The profit or loss on particular work at different
times and cost of stock lines ;

(b) Means by which economical working or more
economical processes may be secured and expenses
controlled ;

(c) Leakages in respect of time and material through
inefficient use.

The Cost Accounts further supply

(d) Periodical Profit and Loss Statements independently
of the financial accounts ;

(e) A basis for future estimates ; and they will also
indicate

(/) Possibilities of increased production ;

(g) Opportunities of reaching wider markets by
reducing prices.

The Cost Accounts will be called upon to provide data
on which decisions will be based as to future operations,
and the following information in particular must be made
available

Whether certain work contributes its share to the
general burden of expense.

Whether the production of a certain class of goods



THE COST LEDGER 133

causes additional expense which other articles are compelled
to bear.

Whether the capital and energy spent on any
specialities could be better employed elsewhere.

Whether it really pays to produce a certain class of
goods at a small profit or at a loss, bearing in mind the
possibilities of securing lucrative trade thereby in other
goods.

In addition to the cost of manufacture and expenses
of marketing, there are many factors which may affect
the fixing of a selling price including competition, demand,
duration of demand, requisite capital outlay and return
obtainable on same in comparison with yield on other
manufactures.

Reconciling Cost Accounts and Financial
Accounts.

When the financial accounts are not framed upon lines
which enable a link with the cost system to be established,
the agreement of the two systems, in order to show that the
profit obtained in the costs is also revealed in the Profit
and Loss Account, must be sought as follows

Wages Account in the financial Direct Wages total will be capable

books must be dissected to of close agreement with wages

obtain charged to Cost Ledger.
Direct Wages
Indirect Wages

Purchases Account in the finan- Direct Materials used

cial books must be dissected i.e. Stocks of Direct Material at

to obtain commencement of period plus

Direct Materials purchases, less Stock at close

Indirect Materials of period should agree within

close limits with Materials in
Cost Ledger.

Expenses chargeable to specific and will agree with similar items

Jobs should be separately in Cost Ledger,
posted in financial books and,
if not, must be obtained by
dissection.

Summary of Works Expenses Measure of agreement with Works

must be obtained from above Oncost in Cost Ledger will

dissection of Wages and Mate- indicate accuracy or otherwise

rial with the items of Works of Oncost Rates and need for

expenses from Profit and Loss adjustment.
Account of the financial books.



134



MANUAL OF COST ACCOUNTS



General Expenses obtained similarly and agreed
similarly with General Oncost.

Material Reconciliation.

1. FINANCIAL ACCOUNTS

Purchases Account.



Jan. 1


To Stock. .
Purchases


10,000
30,000


Dec. 31


By Stock. .
, Material
used


15,000
25,000
40,000


40,000



2. COST ACCOUNTS



(a) Material charged for Jobs

(1) From Purchase Analysis

(2) From Stores Issues

(b) Material chargeable to Expense Accounts

(1) Material used on Repairs . . 1,000

(2) Consumable Stores, Oil, etc. . 500



(c) Material not accounted for .



5,000
18,000



1,500

24,500
500

25,000



Due to

(1) Waste or pilfering.

(2) Variations from cost in pricing of requisitions.

(3) Stock depreciation ; or fall in value of stock.

(4) Calculation or posting errors.



CHAPTER XII



FOUNDRY ACCOUNTS

A FOUNDRY or forge is always treated as a separate
department in Cost Accounts. A foundry record shows
particulars of the meltings each week ; weight of material
mixed (less scrap and spoilt work) and details of castings
made. The working expenses are similarly totalled.

The cost of material used in each mixing is charged to
the castings produced in proportion to their final actual
(or calculated) weight.

The expense cost for the week is similarly charged to
the castings on the basis of weight ; the total expense
divided by the total weight produced, giving a charge
per cwt. to be made to each casting.



(a) Si

Direct Labou

Cylinders
Bench .
Tool
Plate Work
Floor
Weights (no cc


W

[JMMA
\
V.

>res)


EEKI

RY OP

Veek<


,Y C(

LABC
mding

16
16
11
17
12
1


)ST

UR


RETURNS.

AND PRODUCTION.


S.

7
4
12
11
9


d.
6


Production.

CWTS. QRS. LBS.

34
37
20 1
65
54 1
10


Cost.
Per Cwt.
9/7-41
8/9-16
1 1/5-48
5/4-8
4/7-08
2/-



75 3 6



220 2



Indirect Labour.



Labourers, etc

Firemen .

Softener.

Stretcher

Pattern Finder

Coremakers

Dressers.



Production.


Cost.





s.


d.


CWTS. QRS.


LBS.


Per Cwt.


17


4


_


220


2





1/6-72


9


16


6


220


2





10-67


3


17


4


220


2





4-20


4


7


6


220


2





4-73


3


15


1


220


2





4-08


13


16


_


210


2





1/3-16


16


8


-


220


2





1/5-85



69 4 5



6/3-41



136



MANUAL OF COST ACCOUNTS



19/11-5



(b) MATERIAL SUMMARY.

Week ending.

Direct Material s. d. s. d. Cwt.

c. Q. L.

Pig Iron 154 2 (
Scrap (30%) 66 (

Total
Sundry Material

C. Q. L.

Sand . 60 <g
Limestone 7 (a
Sundry Material

c. Q. L.
= 220 2 @ 1/10

Core-making Material

c. Q. L.
= 210 2

Total

Castings with core
out 1/10

Coal and Coke
25 tons @ 70/-
Overhead Expenses

Record of work done is made by each man on a Weekly
Casting Card. Two columns are provided : " Weight
Cast " " Weight Passed." The weight passed is sum-
marized for the Production Records (a). Wages are paid
at weekly rates, and an abstract of wages classified accord-
ing to type of work gives the average wage cost of each
class of castings. Material summarized on Material
Record (b).

FINISHED COST OF EACH CLASS OF CASTINGS PER CWT.
Week ending





* d.


s. d.


} 24 ton
\ 10/7 cwt.


185 3 3
35 6 -


220 Q ^


11/4 ton
50/- cwt.


1 14 -
17 10 -
1 - 3


*L\) C7 O

20 4 3


1/10
I




*iv/ ^ O

1 15 1


2d.






I/-, with-











87 10



7/11





Materials.


Direct
Labour.


Coal
and
Coke.


Sundry


Sundry
Exps.


Gross
Cost.


Labour.


Material


Bench
Plate .
Floor
Cylinders
Tools .
Weights


19/11-5
19/11-5
19/11-5
19/11-5
19/11-5
19/11-5


8/9-16
5/4-8
4/7-08
9/7-41
11/5-48
! 21-


7/11
7/11
7/11
7/11
7/11
7/11


6/3-41
6/3-41
6/3-41
6/3-41
6/3-41
5/0-25


2/-

2/-
2/-

2/-
2/-
1/10


3/-
3/~
3/-
3/-
3/-
3/-


47/11
44/8
44/-
48/10
50/8
39/9



FOUNDRY ACCOUNTS



137



Weights



FINAL COST ACCOUNT.



Week ending

PRODUCTION.



Bench . .
Floor . .
Plate . .
Tool . .
Cylinders




CWTS.

37
54
65
20
34


QRS. LBS.

1


1




10



CWTS. QRS.LBS.

220 2



Material Direct

Pig Iron .
Scrap .



COST.



s. d.



s. d.



f, s. d.
185 3 3
35 6 -

220 9 3

75 3 6 295 12 9



s. d.



Material Indirect



Sand . . . ,
Limestone
Coremaking .
Sundry .

Wages Indirect

Coal and Coke
Overhead Exps.



Cost of Producing



1 14 -

17 10 -

1 15 1

1 - 3



21 19

69 4



91 3 9

87 10 -
33 1 6



507 8 -



CWTS. QRS. LBS.

220 2 of Good Castings 507



8 -



Alternative methods may be used for treating Indirect
Wages and Overhead Expenses which are more suitable
when the variety of castings is great. The amount of
Direct Wages is used in determining the expense
allocations entirely ; or in conjunction with the basis of
weight.



138 MANUAL OF COST ACCOUNTS

FOUNDRY COST SHEET.

The cost of metal is calculated for each mixing by including
Raw Materials, as

i s. d. s. d. s. d.

Pig Iron .... 185 3 3

Scrap 35 6 -

Limestone .... 17 10 -
Coal and Coke. . . 87 10 -
Wages of cupola and

furnace men . . 9 16 6

335 5 9

equal to 220 cwt.

at 22/6 cwt. and

based on the weight

of each casting.
Direct Wages are booked

to each job by
Moulders + % for


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Online LibraryHenry Julius LuntManual of cost accounts → online text (page 8 of 13)