1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 19-2 Maintaining Manufacturing Records

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 19-2 1.Open a materials ledger card. 2.Record orders placed. 3.Record orders received. 4.Record the new balance. RECORDS FOR MATERIALS page 565 1 2 3 4 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

3. CENTURY 21 ACCOUNTING © Thomson/South-Western RECORDING DIRECT MATERIALS ON A COST SHEET 3 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

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 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 ON A COST SHEET page 566 1 2 3 4

5. CENTURY 21 ACCOUNTING © Thomson/South-Western CALCULATING & RECORDING FACTORY OVERHEAD 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

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 19-2 CALCULATING AND RECORDING FACTORY OVERHEAD page 569 Estimated No. of Units (Fax Machines) Produced Estimated Direct Labor Hours per Unit Estimated Salary Rate per Hour Estimated Total Direct Labor 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

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 19-2 CALCULATING AND RECORDING FACTORY 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

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 19-2 CALCULATING AND RECORDING FACTORY OVERHEAD page 569 Factory Overhead Applied Rate Total Direct Labor Costs (Job No. 791) Applied Overhead (Job No. 791) ×= $5,024.00×=$4,019.20 80% 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%)

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 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 SHEET page 570 No. of Units Total Costs (Job No. 791) Cost per Unit ÷= $16,812.50÷=$336.25 501 2 3 6 5 4

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 19-2 Quantity× Unit Cost=Total Cost 110× $339.30=$37,323.00 50×336.25=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 CARD page 571 1 2 3 4

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 19-2 TERM REVIEW applied overhead page 572