CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 19-2LESSON 19-2

Maintaining Manufacturing Records

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

1. Open a materials ledger card.

2. Record orders placed.

3. Record orders received.

4. Record the new balance.

RECORDS FOR MATERIALSRECORDS FOR MATERIALS page 565

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• A card should be prepared for each type of material kept in the storeroom

• The total value for all the materials ledger cards equals the balance of the materials general ledger account

CENTURY 21 ACCOUNTING © Thomson/South-Western

RECORDING DIRECT MATERIALS ON A RECORDING DIRECT MATERIALS ON A COST SHEETCOST SHEET

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LESSON 19-2

During the manufacturing process, all costs of making a product must be recorded

All charges for direct materials, direct labor, & factory overhead applied (estimated) for a particular job are recorded on a cost sheet

When direct materials are needed for a job, they are requested from the storeroom using a materials requisition form

A materials requisition form is used to authorize transfer of items from the storeroom to the factory

When materials are issued to the factory from the storeroom, the materials ledger card is updated

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

1. Open a cost sheet for each job.

4. Record the issuance of direct materials.

2. Prepare a materials requisition.

3. Update the materials ledger card.

RECORDING DIRECT MATERIALS RECORDING DIRECT MATERIALS ON A COST SHEETON A COST SHEET page 566

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CENTURY 21 ACCOUNTING © Thomson/South-Western

CALCULATING & RECORDING FACTORY CALCULATING & RECORDING FACTORY OVERHEADOVERHEAD

5

LESSON 19-2

Factory overhead expenses occur throughout a fiscal period

Factory overhead expenses are not known until the end of a fiscal period

Factory overhead expenses normally are charged to jobs by using an application rate based on a known cost such as direct labor

The estimated amount of factory overhead recorded on cost sheets is called applied overhead

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

CALCULATING AND RECORDING CALCULATING AND RECORDING FACTORY OVERHEADFACTORY OVERHEAD page 569

Estimated No. of Units

(Fax Machines) Produced

EstimatedDirect Labor

Hours per Unit

Estimated Salary Rate

per Hour

EstimatedTotal DirectLabor Cost

× × =

10,000 × 8 × = $1,000,000.00$12.50

Generally three factors are considered in estimating factory overhead Amount of factory overhead for the past several fiscal periods Number of products the factory expects to produce in the next

fiscal period Expected change in unit costs of factory overhead items

FaxaVision uses direct labor cost as a base unit because there is a close relationship between the amount of direct labor cost & factory overhead costs. FaxaVision estimates next year’s direct labor cost as $1,000,000.00

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

CALCULATING AND RECORDING CALCULATING AND RECORDING FACTORY OVERHEADFACTORY OVERHEAD page 569

Estimated Direct Labor Cost

Estimated Factory Overhead

Factory Overhead Applied Rate

÷ =

$800,000.00 ÷ = .80 or 80%$1,000,000.00

FaxaVision’s factory overhead applied rate is 80% of direct labor cost

Estimate the number of base units that will be used in the next fiscal period.

Base units are usually cost items that can be identified easily Direct labor cost, direct labor hours, & direct materials cost are

common bases A base unit should be selected that most closely relates to

actual overhead costs.

FaxaVision expects to product 10,000 fax machines during the coming year. Considering this volume, previous years’ overhead, and anticipated cost increases, FaxaVision estimates factory overhead as $800,000

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

CALCULATING AND RECORDING CALCULATING AND RECORDING FACTORY OVERHEADFACTORY OVERHEAD page 569

Factory Overhead Applied Rate

Total Direct Labor Costs (Job No. 791)

Applied Overhead (Job No. 791)

× =

$5,024.00 × = $4,019.2080%

Calculate and record the amount of applied overhead, $4,019.20, on the cost sheet for Job No. 791 (total direct labor for Job No. 791, $5,024.00, multiplied by the factory overhead rate, 80%)

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

1. Total direct materials.

2. Total direct labor.

5. Determine total job cost.

4. Calculate applied factory overhead.

3. Transfer amounts to Summary columns.

6. Determine cost per unit.

COMPLETING A JOB COST SHEETCOMPLETING A JOB COST SHEET page 570

No. of UnitsTotal Costs

(Job No. 791)Cost per Unit÷ =

$16,812.50 ÷ = $336.2550

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CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

Quantity × Unit Cost = Total Cost

110 × $339.30 = $37,323.0050 × 336.25 = 16,812.50

$54,135.50

1. Complete the Manufactured/Received columns.

2. Enter existing inventory balance.

3. Extend data for Job 791.

4. Calculate total cost.

FINISHED GOODS LEDGER CARDFINISHED GOODS LEDGER CARD page 571

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CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 19-2

TERM REVIEWTERM REVIEW

applied overhead

page 572