Accounting

Materials Cost Flow In A Process Costing System

Materials Cost Flow in a Process Costing System: In a process cost system, materials, labor and factory overhead costs are accumulated in the usual accounts using normal cost accounting procedures. Costs are then analyzed by departments or processes and charged to departments by appropriate journal entries. The details involved in a process cost system are usually fewer than those of a job order system where accumulation of costs for many orders can become unwieldy.

Materials Cost Flow In A Process Costing System :

In a job order cost system, materials requisitions are used to charge jobs for materials used. If requisitions are used in process cost system, the details are considerably reduced because materials are charged to departments rather than to jobs, and the number of departments using materials Is usually less than the number of jobs a firm might handle at a given time. Frequently materials are issued only to the process- originating department; subsequent departments add labor and factory overhead. If materials are needed in a department other than the first; they are charged to that department performing the specific operation.

For materials control purposes it may still be desirable to require materials requisition cards which need not always be priced individually.

The Accounting Procedure for Materials Cost Flow In A Process Costing System:

The cost of materials used can be determined at the end of the production period through inventory difference procedures; i.e., adding purchases to opening inventory and then deducting closing inventory. Or, consumption reports can be used which state the cost of materials or quantity of materials put into process by various departments. Costs or quantities charged to departments by consumption reports may be based on formulas or pro-rations. Formulas specify the type and quantity^ of materials required in the various products and are applied to the finished production in order to calculate the materials consumed. Chemical and pharmaceutical industries use such procedures, particularly when more than one product is manufactured by a department. Frequently materials used by a department have to be prorated to different products on various estimated bases.

For any of the materials cost computation methods discussed, a typical journal entry to record Materials Cost Flow In A Process Costing System during a period is

Dr. Work in Process-Mixing Department 24,500

Cr. Materials                                                        24,500

The cost figures for the above entry as well as those for labor and factory overhead are based on the figures used in the cost of production reports. To learn more on Materials Cost Flow In A Process Costing System, visit here.

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