The time reports should be summarized for entry on the pay-roll in the same manner as in the previous system. All the direct labor is also entered upon the process card record, classified according to department, machine number, and operation. The direct labor time, classified by operations, is also entered upon the “Production Order and Cost Sheet” of the respective orders. It will be seen, therefore, that the direct labor time as entered upon the process card records should agree with the productive labor time entered upon the production order and cost sheet. The wages of the engineers and firemen should be entered upon the power costs and distribution record.
Pay-Roll (Form 39)
This design is the same as that used in Chapter XIV, but is used in the present system for pay-roll purposes only. Except for this difference, the explanation of the form given in Chapter XIV will apply here.
Analysis of Factory Expenditures (Form 41)
The “Analysis of Factory Expenditures” is used for analyzing the indirect expenses. The information is obtained from the accounts payable vouchers. The columns may be headed with the names of the items composing the indirect expenses; and at the end of a year a summary sheet may be prepared with the names of these items entered at the left of the form, and the months of the year running across the top of the form. This summary sheet should prove valuable as a comparative statement, showing the variations in the indirect expenses each month.
That portion of the indirect expenses chargeable directly to a particular department should be entered on the process card record of that department. The items of the indirect that are chargeable to the power costs should in a like manner be entered upon the “Power Costs and Distribution Record.” The remaining items of indirect expense are distributed on the basis of productive labor.
Process Card Record (Form 45)
Wherever a process cost system can be used, it will give more accurate results than any other method employed in cost finding. It is by the process card record and power cost and distribution record that the principles of the system are illustrated. The process card record will, of course, permit of changes according to conditions in manufacture, not only as to arrangement of columns for the analysis of costs, but also as to arrangement of the information. The results to be obtained, however, are the operating hours, and the various machine or process costs.
To illustrate: The form shown provides for the distribution of time and cost on the side of the form, and the operations at the top of the various columns. By leaving the columns last mentioned blank, and using a separate card for each operation or machine, the columns may be headed according to days, weeks or months, without changing in any way the ruling shown, and without affecting the results to be accomplished. On the other hand, the form may be re-designed, the distribution of the time and cost be entered at the top of the columns, the operations entered on the side, and the form used as a daily, weekly or monthly record for all operations in the plant. Where this is done, and the form used for recording daily transactions, naturally a new sheet or card must be used each day, and summarized by the week or month.
The entry from the time records on this card will show the machine hours of operation and the idle machine time. Under the captions “Day Work” and “Piece Work” will be entered the labor cost for each day. Under the caption “Supplies” will be entered the cost of supplies, as shown by the report of material delivered, and under the caption “Power” will be shown the power cost as taken from the “Record of Power Costs and Distribution.”
The next item, “Floor Space,” is the rent, or other charges which take the place of rent if the building is owned. These are obtained from the analysis of factory expenditures. The total floor space of the plant is to be ascertained by departments, and this total divided into the total cost of the floor space will give the cost per square foot. The space occupied by each machine or process should be calculated in square feet, and this number multiplied by the cost per square foot, will give the amount to be charged for floor space. A permanent schedule should be on hand stating the various divisions of floor space.
Where the property and plant are owned by an individual or company, the amount of rental will be ascertained by taking into consideration, interest, taxes, maintenance, insurance, and any other items relating to the cost of the ground or building. Under the caption “Maintenance” the cost is obtained from the time reports and from material requisitions or reports of material delivered. “Depreciation” should come from a permanent schedule, to be made up so that a fixed charge, based on the machine charge for actual working hours, may be made against each month’s operation, and divided among the machines or processes.
The “Insurance” item is taken from a schedule compiled from the total amount of insurance paid, that part of the insurance applying to the machinery being divided departmentally among the various operating departments.
The information under the caption “Department Indirect” is obtained from the analysis of factory expenditures, which shows the indirect expenses chargeable to different operating departments which are not already classified on the process cost card.
The last item, “Indirect Expenses,” can be obtained from the analysis of factory expenditures by taking the balance of the indirect expenses for the cost period, and dividing this amount by the machine hours. The rate per hour thus ascertained, multiplied by the hours charged to each machine or operation, will give the amount chargeable to this machine or operation.
It will now be seen that all the costs relating to manufacturing, except material, have been charged against machines or operations. The total operating cost per hour will now be calculated for each machine or operation. The rate obtained is then applied to the various orders passing through any or all of the machines or operations, according to the time consumed, by multiplying the number of hours by the rate per hour, the result being the process or machine costs. The information contained on the process card record is transferred to the production order and cost record.
Power Cost and Distribution (Form 46)
This record, as to labor costs, is made up from the time reports. The rental, depreciation, and insurance items are entered from the prepared schedules already referred to. The record of repair costs will come from the time reports, and also from the material requisitions or reports of material delivered. Oil, waste, etc., will also come from the material requisitions or reports of material delivered.
The total of this power cost is divided by the total horse-power hours of all machines as actually operated, to obtain the rate per horse-power hour. This unit rate or horse-power cost per hour is multiplied by the total number of operating hours of each machine, and the amount extended in the column headed “Power Costs.” The total of this column should equal the total shown in the column headed “Costs” in the analysis of power cost.
Production Order and Cost Sheet (Form 16)
The original of this form has been referred to previously as a production order. The explanation which follows applies only to the duplicate copy. The information under the caption “Operations” is taken from the time reports of the employees, chargeable to the order. The entries are for time only, and a summary of the time records for this purpose should be made.
It does not make any difference how many employees are engaged on one operation, or what their rate may be, as the total number of hours for each operation or machine is all that is entered on this record from the time reports. At the end of the month the total time in each operating column is shown, and the process or machine rate entered, this latter information being obtained from the process card record.
The total number of hours, multiplied by the rate per hour of each operation, will give the process or machine costs chargeable to the order, according to operation or machine. The total of the various operations will give the total cost chargeable to the order, including indirect or overhead expenses.
The information under “Material Used” will be taken from the report of material delivered, and the total entered after the word “Material” under the caption “Summary.” The total cost of the order is obtained by adding the process cost to the material cost.
Below the total cost may be entered the quantity of the order, the price per piece, where it is applicable, the selling price and gross profit. The cost of the order is entered under the proper classification in the finished stock records, and the information under “Selling Price” should be used in billing the order for shipment. The cost and selling price may also be used in the analysis of cost of sales.
Other Forms Used
Stock Record, Finished Product (Form 56
Bill and Shipping Order (Form 62)
Credit Certificate (Form 63)
Register of Sales and Costs (Form 64)
Inventory Test (Form 60)
Statement of Profit and Loss (Form 68)
Balance Sheet (Form 69)
The general explanation of these forms 1n Chapter XIV is sufficient to show their use in the present system.
Explanat1on Of Chart And Summary Of Entr1es
Subsidiary Forms and Records
The forms necessary to record the authorization and purchase of materials and supplies, and to record the other expenditures incurred, are as follows:
(1) Purchase Requisition
(2) Purchase Order
All these are used in the same manner as described in the previous system.
The accounts payable voucher is used for the purpose of classifying the expenditures preparatory to their entry on the register of accounts payable. The information necessary to classify the expenditures on the accounts payable voucher is obtained from the invoice in the case of materials and supplies or indirect expenses, and from the pay-roll in the case of direct and indirect labor.
The forms used in receiving, storing, and requisitioning raw material and supplies are used in the same manner as in the previous system.
The report of material delivered is used to show the raw material and supplies put into operation; and the information relating to raw material is transferred to the “Production Order and Cost Sheet,” while the information relating to the supplies is transferred to either the process card records or the power cost and distribution records.
The compilation of the cost data is made upon the production order and cost sheet. The information for the material charged is obtained from the report of material delivered. The information for the labor and indirect expense charges is obtained from the process card record, together with the time reports, which show the productive labor time upon each particular order.
The productive labor cost is transferred to the process card records or the power cost and distribution records from the time reports, which are summarized upon the pay-roll for pay-roll purposes and entered upon the accounts payable voucher.
The information for the analysis of factory expenditures is obtained from the accounts payable voucher, and is transferred to either the power cost and distribution records or the process card records. Afterwards all information on the power cost and distribution records is transferred to the process card records.
The cost of the finished stock orders or finished parts is transferred to the respective stock records: and in case any finished parts are put back into operation for completion. the cost of such parts is transferred to the cost sheet. When finished parts or finished stock are shipped, the stock records are credited, and an entry is made upon the register of sales and costs from the duplicate of the bill and shipping order.
When merchandise is returned by a customer, a report of material received is made out, which supplies the data for (1) the credit certificate, (2) transferring such merchandise back into either part-finished or finished stock, and (3) making the proper entrv uoon the register of sales and costs.
Method of Control
The cost records in this system are controlled by means of a “Factory” account, which is kept in the general ledger. This account is debited with all the factory charges of material, labor and indirect expenses when the Accounts Payable account is credited. The Factory account is credited with the cost of the sales when these are charged to the various sales accounts. The analysis of the Factory account is shown by accounts which are kept in the factory ledger, and its balance should agree with the total of the balances shown by the accounts in the factory ledger.
Factory Ledger Accounts
The following accounts are kept in the factory ledger:
(1) Raw Material and Supplies
(2) Direct Labor
(3) Indirect Expense
(4) Power Costs
(5) Process Costs
(6) Work in Process
(7) Part-Finished Stock
(8) Finished Stock
The Raw Material and Supplies account is a controlling account for the raw stock records, and shows in total what is shown by the raw stock records in detail. It is debited with all purchases of raw material and supplies from an analysis of the “Factory” column in the register of accounts payable. It is credited with any allowances, and with the total amount of material and supplies delivered to the operating departments.
The Direct Labor account is debited with the total amount of the productive labor from the analysis of the “Factory” column in the register of accounts payable, and is credited in total from the summaries showing the distribution of productive labor when this latter is charged either to the process costs or power cost accounts.
The Indirect Expense account is debited from an analysis of the “Factory” column in the register of accounts payable with the items composing the indirect when these are incurred, and is credited from the analysis of factory expenditures with the distribution of the indirect expenses when these are charged either to process costs or power costs.
The Power Costs account is debited with the supplies necessary for repair and maintenance of the machines, as per report of material delivered; with the amount of the labor as per the time reports summary, and with the indirect expenses chargeable to the various machines as per analysis of factory expenditures. It is credited from the “Power Costs and Distribution Summary” with the distribution of the total cost when this is charged to the process costs.
The Process Costs account is debited with direct labor 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 account is credited from the process card record summary with the distribution of the total cost when this is charged to the Work in Process account.
The Work in Process account is debited with the amount of material delivered 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 record 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, when 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 summary 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.
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 account in the general ledger.
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