Cost Accounting System

Cost Accounting System

• Records financial effects of events occurring in the production process

• Initiated by the work order

• Cost accounting clerk creates a new cost record for the batch and files in WIP file

• Records are updated as materials and labor are used

Elements of the Cost Accounting System

• Inventory Control: materials requisitions

• Work Centers: job tickets, completed move tickets

• Cost Accountants:

  • Update WIP accounts

  • Standards: DL, DM, Mfg. OH.

  • Compute variances

Cost Accounting System

• Receipt of last move ticket signals completion of production process

• Clerk removes cost sheet from WIP file

• Prepares journal voucher to transfer balance to finished goods inventory account

• Forwards to General Ledger department

• Segregation of duties:

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• __

  • Inventory control separate from RM and FG inventory custody

  • Cost accounting separate from work centers

  • GL separate from other accounting functions

• Transaction authorization:

• work orders, move tickets, and materials requisitions

• Segregation of duties:

• 
  

  • Inventory control separate from RM and FG inventory custody

  • Cost accounting separate from work centers

  • GL separate from other accounting functions

• Supervision

• : supervisors oversee usage of raw materials and timekeeping

• Access control :

• limit physical access to finished goods, raw materials stocks, and production processes; use formal procedures and documents to release materials into production

• Accounting records: work orders, cost sheets, move tickets, job tickets, materials requisitions, WIP records, FG inventory file

• Independent verification: cost accounting function reconciles all cost of production; general ledger reconciles overall system

Transaction Authorizations

• Work orders: reflect a legitimate need based on sales forecast and finished goods on hand

• Move tickets: signatures from each work station authorize movement of the batch through work centers

• Materials requisitions: authorize warehouse to release materials to work centers

• Work orders:

reflect a legitimate need based on sales forecast and finished goods on hand

Move tickets:

signatures from each work station authorize movement of the batch through work centers

Materials requisitions:

authorize warehouse to release materials to work centers

Segregation of Duties

• Production planning and control department is separate from work centers

• Inventory control is separate from materials storeroom and finished goods warehouse

• Cost accounting function accounts for WIP and should be separate from work centers in production process

Supervision

• Work center supervisors oversee usage of raw materials to ensure all released materials are used in production and waste is minimized

• Employee time cards and job tickets are checked for accuracy

Access Control

• Direct access to assets:

  • Controlled access to storerooms, production work centers, and finished goods warehouses

  • Quantities in excess of standard amounts require approval

• Indirect access to assets:

  • Controlled use of materials requisitions, excess materials requisitions, and employee time cards

Accounting Records

• Pre-numbered documents

• Work orders

• Cost sheets

• Move tickets

• Job tickets

• Material requisitions

• WIP and finished goods files

Independent Verification

• Cost accounting reconciles material usage (material requisitions) and labor usage (job tickets) with standards

• Variances are investigated

• GL department verifies movement from WIP to FG by reconciling journal vouchers from cost accounting and inventory subsidiary ledgers from inventory control

• Internal and external auditors periodically verify raw materials and FGs inventories through physical count