Accounting and Control of Material, Labour and Overhead

1. Accounting and Control of Material, Labour and Overhead Accounting and Control of Material Accounting and Control of Labour Accounting and Control of Overhead

2. Accounting and Control of Material • Materials : supplies purchased from outside sources and used to manufacture products for sale • Direct material and Indirect material (part of factory overhead) • Materials must be available and acquired before production can begin

3. Accounting and Control of Material • Emphasis on Material control • Purchasing procedure • Documents involve includes: purchase requisition, • Material receipts • Use of bin card to record material received • Use bin card of record movement of material • Use of stores record card

4. Sources of demand: storekeeper, department heads Request for material on purchase requisition Selection of supplier by purchasing department & dispatch of purchase order to supplier Receiving of goods and invoice by receiving department Materials checked and inspected and GRN prepared Materials and GRN sent to store. Invoice and, GRN and inspection report sent to purchasing dept. Materials checked against goods received note by storekeeper Invoice checked by purchasing department against purchase order, GRN and inspection report Invoice signed by buyer and sent to accounts department Payment made by accounts department.

5. Control of Material • Stores control • Optimum level of inventory should be maintained • Material should be protected against pilferage or deterioration • Materials should be identified and located speedily • Stocktaking • Material issues • Use of material requisition note • Pricing of material • First In First Out • Last In First Out • Weighted Average

6. Accounting for Materials • Records are maintained to record • Purchase of materials • Return of materials to suppliers • Materials issued from store to production • Materials returned from production to store • Transfer of materials between jobs

7. Accounting and Control of Labour

8. Accounting and Control of labour • Recording of labour time • Time sheets (record the time spent on each job ) • Job cards • Job ticket (prepared for each operation within a single job)

9. Accounting and Control of Labour • Method of remuneration • Time rate (employee paid on the basis of time worked) • Payment by result or piecework • Piecework with guaranteed day rate (guaranteed a day rate) • Differential piece rate (piece rate vary at different level of efficiency) • Premium scheme

10. Accounting for Labour • Wage reports prepared: • Overtime report • Idle time report (shows idle time , production time and analysis of idle time) • Labour turnover report • Wage analysis report • Reconcile the total gross wages with the wages allocated to the jobs or cost centres

11. Accounting for Overhead • Cost Allocation and Cost Apportionment • Blanket overhead rate vs Departmental overhead rate • Actual vs Normal Costing • Overapplied and Underapplied Overhead

12. Cost Allocation • Cost Allocation • Indirect material and indirect wages that are specific to a cost centre can be allocated • Overhead costs can be allocated to cost centre if: • Caused solely by a particular cost centre and • The exact amount is known

13. Cost Apportionment • Defined as “the allotment to two or more cost centres of proportions of common items of cost on the estimated basis of benefits received” (CIMA)

14. Overhead Absorption • The allotment of overhead to cost units by means of rates separately calculated for each cost center” (CIMA)

15. Actual costing • Actual Costing - allocates: • Indirect costs based on the actual indirect-cost rates times the actual activity consumption

16. Normal costing • Normal Costing – allocates: • Indirect costs based on the budgeted indirect-cost rates times the actual activity consumption • Both methods allocate Direct costs to a cost object the same way: by using actual direct-cost rates times actual consumption

18. Actual Costing Normal Costing

19. Over or under absorption of Overhead

20. Job order Costing