week 3 – chapter 2 cost flows€¦ · the output and sale of the finished product 2. reconstruct...
TRANSCRIPT
-
Week 3 – Chapter 2 COST FLOWS
FNSACC507A Provide Management Accounting Information
-
By the end of this lesson, you need to know how to…
1. PREPARE SOME JOURNAL ENTRIES Prepare all the journal entries for a period (including any journals for over- and under- applied overhead costs) that will summarise factory operations relating to: The acquisition of resources (materials, labour and factory overhead) The utilisation of these resources in production The output and sale of the finished product 2. RECONSTRUCT SOME GENERAL LEDGER ACCOUNTS Prepare all relevant general ledger “T” accounts as at the end of the period.
-
Overview 1. Cost flow DIAGRAM (based on the
manufacturing process) 2. Job Order production VS Process production 3. Inventory management 4. Methods of accounting for inventories –
Perpetual vs Periodic 5. The ledger system 6. Cost flows using a single ledger system –
Worked Example (Cosmix Manufacturing Co.)
-
The Manufacturing Process
Is about converting raw materials into finished goods with the use of
direct labour and factory overhead.
-
The Manufacturing Process
WORK IN PROGRESS
MATERIALS
LABOUR
OVERHEADS
FINISHED GOODS
-
NOTE TO STUDENTS: Before moving on to the next slide, please open the
following document now:
WEEK 3_FNSACC507A_Management Accounting_Cost Flow Diagram
This diagram explains how production costs are incurred and
passed on in the manufacturing process. Please keep this diagram handy for when we do our journal entries later on in the
lesson.
Cost Flow Diagram
-
2. Job Order production VERSUS Process production
JOB ORDER production PROCESS production
Each item or batch produced is UNIQUE and manufactured according to the customer’s specific instructions.
Mass production of SIMILAR units.
e.g. Home Construction (building industry)
e.g. Building Materials
-
3. Inventory Management 3.1 Types of inventory
(covered in WEEK 9) 3.2 Effectively managing each type
of inventory
-
Types of inventories Materials includes stocks of raw material and
factory supplies e.g. lubricating oils for machinery; cleaning cloths etc.
Work-in-progress are partially completed goods that will be completed in the future e.g. cardboard pieces cut out and ready to be glued.
Finished goods are fully completed products ready for sale e.g. boxes.
-
Effective inventory management
RAW MATERIALS
Keep enough raw materials on hand to satisfy production orders.
WORK-IN-PROGRESS (WIP)
Maintain a steady rate of production to ensure labour and production facilities are effectively utilised.
FINISHED GOODS
Maintain adequate levels of finished goods to satisfy immediate customer demand.
-
4. Accounting for inventories There are two (2) methods used to account for inventories:
PERPETUAL PERIODIC Movements in inventory are continuously tracked.
Movements in inventory are NOT continuously tracked. They are only determined at the end of the accounting period.
The updated balance of each type of inventory is always available (RM-WIP-FG).
COGS is determined by conducting a physical stocktake at the end of the accounting period to determine ending inventories. Ending inventories are then deducted from the beginning inventory balance, purchases and other direct material costs.
Each type of inventory has a CONTROL ACCOUNT and is supported by a SUBSIDIARY LEDGER SYSTEM.
Op. inventory (stocktake) + Purchases + Freight on purchases, customs duty, other purchasing costs etc. - Cl. Inventory (stocktake) = COGS
-
5. The ledger system Mirrors the physical flow of production.
Attempts to measure the costs associated with
converting raw materials into finished goods.
-
5. The ledger system For all cost / asset accounts:
DEBIT (DR) CREDIT (CR) When costs are incurred. When costs are distributed or
passed on in the production process.
-
Worked Example
COSMIX Manufacturing Company
This example will take you through all the journal entries that will summarise factory operations relating to: The acquisition of resources (materials, labour and factory
overhead) The utilisation of these resources in production The output and sale of the finished product
-
Worked Example
COSMIX Manufacturing Company
NOTE TO STUDENTS: Before moving on to the next slide, please open and work through the following document now:
WEEK 3_FNSACC507A_Management Accounting_WORKED EXAMPLES 1
-
Worked Example
Manufacturing Company
This example will take you through the process of reconstructing selected general ledger accounts based on the journal entries prepared which summarise factory operations relating to: The acquisition of resources (materials, labour and factory
overhead) The utilisation of these resources in production The output and sale of the finished product
-
Worked Example
Manufacturing Company
NOTE TO STUDENTS: Before moving on to the next slide, please open and work through the following document now:
WEEK 3_FNSACC507A_Management Accounting_WORKED EXAMPLES 2
-
This week’s homework Read chapter 3 à Cost Flows Complete homework questions (chapter 3)
(ref. STUDENT ONLINE STUDY GUIDE)
-
You are now ready to start the next lesson on:
CHAPTER 4
Materials Costing