How should Manufacturing Supplies be treated in Cost Accounting?

Charge to Inventories: When closer control of manufacturing supplies is required or when more than one department uses certain manufacturing supplies, it is not practical or correct to charge only one department at the time of purchase. In such cases, manufacturing supplies purchased are charged to an inventory account at the time of purchase ; and departments using the manufacturing supplies are charged when supplies are issued.

When an inventory account is used, consumption may be determined by one of two methods. First, if the supply is used only in one department, it is possible to determine the amount to be charged to that department by:

(1) taking a physical inventory at the end of each month,

(2) adding purchases for the month to the cost of the beginning inventory, and

(3) subtracting the final cost assigned to physical inventory at month-end from this total to determine the usage for the month.

A second method of accounting for the cost of manufacturing supplies through an inventory account involves the use of materials requisitions. Requisitions approved by authorized employees permit charging a department with the proper cost and thereby provide better control over the use of materials than the physical inventory method. However, additional clerical work is required since requisitions must be prepared, priced, and summarized.

Show More

Related Articles

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker