Try to explain the difference between expense and cost by using an example of cooking Indomie with egg【The concept of work-in-progress as greater than the material and less than the product】
The cost was the amount of money it cost to purchase, expense is the difference between the cost of the product sold and the cost of the product produced. Incurred expense refer to the entire expense invested in making the product, which includes the expense that could not be cost, and less than the product, which is greater than the materials, is work in progress.
ERP systems such as Microsoft Dynamics and Sage Accpac, which are often introduced in Indonesia, adopt the continuous record method to automatically generate accounting journal when the production and input results are recorded.
Material and processing costs incurred on the manufacturing floor are the expenses incurred during the month, while the cost of production is the cost of making the product itself, and the cost of sales is the cost of making the product itself, which is sold. The SG&A cost to sell is deducted from gross profit.
How to correct a mistake in entering the results【Adjust the quantity in the inventory adjustment and correct the manufacturing cost in the accounting journal】
When an error in the quantity of input materials is entered in the manufacturing result, the direct material cost is over (or under) recorded as a result of being forcibly adjusted by inventory adjustment, resulting in a mistake in the manufacturing cost of the product, so the material account is corrected by the amount of the appropriate unit price through a transfer to other accounts.
If the total average unit price of materials can be calculated by the cost management system, the material cost incurred in the current month, the manufacturing cost in the current month, and the cost of sales in the current month can be calculated by accumulating processing costs for each process using the cumulative method, which is necessary for creating P/L.
The manufacturing cost calculated by "inventory of work in progress at the beginning of the month + expenses incurred during the month - inventory of work in progress at the end of the month" can also be calculated by "total average unit price of input products x quantity of input products + own process processing cost", and the breakdown by cost item for each process becomes a cumulative method.
Direct labor costs should be prorated in proportion to time (manpower = efficiency), such as "how much per hour", while depreciation of buildings (manufacturing overhead costs) should be prorated according to production volume, such as "how much per piece". Since the criteria for prorating direct labor costs and manufacturing overhead costs are different, the prorating ratio is also differentiated as a wage rate and an allocation rate.
OK now that you've had a chance to look at the numbers, let's get right into them. Let's assume that we are all accountants for Morgana manufacturing company and that we manufacture high-quality furniture like tables etc.
OK let's assume in this example that Morgana manufacturing company produces tables. Product cost, all product cost can be categorized into three subgroups, direct material DM, direct labor DL, manufacturing / factory overhead, I use both the terms because some text books use factory overhead, and some text books use manufacturing overhead.
Work-in-process inventories and manufacturing costs when production performance spans more than one month【Direct material costs based on input performance, manufacturing costs based on manufacturing volume, and cost of sales based on shipment】
In business accounting, revenue (sales) and expenses (purchases) are recognized when a transaction occurs, whether on an inbound basis (shipping basis) or an acceptance basis, so the profit calculated by subtracting expenses from one month's revenue is not equal to the actual balance of cash and deposits. Even if the conditions are the same, the pressure to pay for material purchases at the end of the month (cash flow) will vary because the following conditions vary from company to company.
Inventory valuation method and timing of actual data entry【Purchase accounting by moving average method is based on the basis of incoming orders】
In the trifurcation method, the cost of goods sold is calculated by unconditionally posting the cost of goods sold to the purchase account at the time of purchase, transferring the beginning of the month to the end of the month, and transferring each contra account (opening stock and closing stock) and purchase account to the cost of goods sold at the end of the month. However, in Indonesia, it seems that in many cases, the amount consumed at the end of the month (the amount sold) is transferred to the manufacturing cost (cost of sales) calculated based on the standard cost, which is recorded in asset accounts (materials and goods) at the time of purchase.
Accrual costs based on actual production and actual input in the cost management system【Accrual costs based on input volume are the cost of production in process】
If there are only material inputs and no material inputs, then the cost incurred during the month is also zero, and the cost incurred during the month is defined as "cost of materials input during the month = cost incurred on an input basis". If there is no production, then the manufacturing cost is also zero and the manufacturing cost is "the cost of materials with production volume in the month = the cost of actual production in the month". If there are no sales, the cost of sales is also zero and the cost of sales is "Cost of goods sold in the month = Cost of goods shipped in the month = Cost incurred in the month based on actual shipment.
Relationship between current month's expenses and cost of production of work in progress【To include work in progress in the B/S, it is necessary to allocate processing costs to work in progress】
When I first started studying costing, it took me a long time to understand that manufacturing cost is a manufacturing cost of a product.
In Indonesian, the word mutasi means to "move" such as movement or change, which is an alien word from the English word mutation, and this mutasi can be broadly divided into Goods Receive, Goods Issue, Movement, and Inventory Transfer. (Transfer).
By converting indirect work hours into direct work hours, fixed costs can be converted into variable costs (purchasing costs), and even if the wage rate (how much per hour) is the same for the same working hours and the same cost (salary), increasing the direct work hour ratio can increase volume and increase operating income.
All SG&A expenses are expensed in the month in which they are incurred, but the cost of product manufacturing is expensed (cost of sales) only for what is sold at the time of shipment or at the end of the month, and the remainder becomes inventory at the end of the month as an asset.
Total average unit cost of input items and own-process processing cost, which are necessary for calculating the accumulation of production costs
The manufacturing cost is calculated by dividing the cost of products into three parts: "work-in-process at the beginning of the month + manufacturing cost of the month - work-in-process at the end of the month," which is called rolling costing.
The relationship between the number of man-hours (how many minutes per piece) and the wage rate (how much per hour) used to be based on an agreement between the orderer and the subcontractor and the wage payment = standard man-hours x standard wage rate, but now it seems to have a stronger meaning as a management indicator.
Until 8 years ago, I had boutiques at Ramayana Mall in Denpasar, Bali and Danau Tamblingan Street in Sanur, Bali, and my strategy was to run a time machine to take advantage of the fact that "Jakarta's trends come to Bali 3 months late".
Accounting journal entries for inventory receipts and end-of-month reconciliation through the cost management system
Cost management system can be used for both management accounting and financial accounting, but the journal for COGS calculation in "Accounting journal generation by business system" was based on the trichotomy of manually transferring the beginning of the month, the end of the month, and the current month's purchase to the COGS account for calculating cost of sales (COGS) as a closing journal.
Manufacturing costs are broadly divided into direct material costs (goods), direct labor costs (personnel), and manufacturing overhead costs (machinery). Most of the variable costs are accounted for by direct material costs and subcontracted processing costs, while manufacturing variable costs (direct costs) are included as part of manufacturing overhead, such as machinery utility costs, shipping costs for specific products, and purchase costs.