Applied Materials Acquisition (M&A) Costs: If it is decided that materials Acquisition cost should be the net price paid the vendor plus incoming freight charges plus other acquisition costs, such as those of the purchasing department, receiving department, testing, insurance, and applicable accounting functions, an applied rate might be added to each invoice and to each item.
How to calculate Materials Acquisition Costs :
When this procedure is impractical, a single amount can be added to the total materials Acquisition cost for a given lot, order, or department. A single rate for these combined costs can be used, or a more accurate method of using separate rates for each class of Acquisition costs can be computed as follows:
Estimated Purchasing Dept. Cost for Month or Budget Period /Estimated Number of Purchases or Estimated Amount of Purchases Purchased=Rate per Purchase
Estimated Receiving Dept. Cost for Month or Budget Period/Estimated Number of Items to Be Received During Period = Rate per Item
Estimated Materials Department Cost for Month or Budget Period/ Estimated Number of Items, Feet of Space, Dollar Value, etc = Rate per Item, Cubic Feet, Dollar Stored, etc.
Estimated Accounting Dept. Cost for Month or Budget Period /Estimated Number of Transactions = Rate Per transaction
This procedure results in the accounting treatment for applied acquisition cost as shown below:
Materials xxx Dr.
Purchasing Dept. Expenses Applied xxx
Receiving Dept. Expenses Applied xxx
Materials Dept. Expenses Applied xxx
Accounting Dept. Expenses Applied xxx
Actual expenses incurred by each of the departments for which applied rates are used will be debited to the applied accounts. Differences between the expenses incurred by the departments during the period and the expenses applied to materials cost would represent over- or under-applied expenses and would be closed to Cost of Goods Sold or prorated to Cost of Goods Sold and inventories. Visit For Accounting for Material