Different costing methods for each business system

About the cost accounting function of business systems

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.

In this case, variable costs, which are direct material costs, are recorded as direct material costs as the result of multiplying the unit price obtained by the first-in, first-out method or moving average method by the actual input quantity.

For fixed costs such as direct labor and manufacturing overhead, the standard allocation ratio is set in the bill of materials (BOM), and the result of multiplying actual man-hours and actual operating hours is recorded as direct labor and manufacturing overhead costs.

Then, the difference between the amount actually accrued at the end of the month and the actual amount fixed at the end of the month must be manually allocated to the current month's production costs (direct labor and manufacturing overhead) and the inventory at the end of the month.

The costing method that emphasizes the quickness of real-time interlocking of inventory and accounting is originally called actual costing, but it is often said that standard costing is adopted in the field of operation.

On the other hand, in the system that adopts the periodic method to calculate manufacturing cost by subtracting the inventory at the end of the month from the inventory at the beginning of the month and expenses incurred during the current month, instead of generating an accounting journal at the time of recording the actual production or input results, the actual amount of fixed costs actually incurred by each cost center is tabulated in addition to the variable cost unit price calculated by the gross average method, and the actual wage rate (or actual allocation rate) is calculated by dividing the actual direct working hours or the actual manufacturing quantity by the aggregate value of each cost center.

In the case of standard costing, material requirements are calculated by expanding the number of products to be produced in the BOM, and the variable cost unit price of the product is calculated by multiplying the material unit price, which is the master value.

The standard wage rate (or standard allocation rate) is calculated by dividing the fixed cost budget tabulated by cost center by the scheduled direct work hours or the scheduled production volume tabulated by cost center calculated by BOM time expansion.

Method of calculating the cost of products by cost category

This is a summary of how the manufacturing costs of products produced through three manufacturing processes (process 1, process 2, and process 3) are accumulated for each cost accounting method.

The system of the continuous record method assumes actual costing, which is done in real time, and the system of the periodic method assumes actual costing, which is done in batches after the closing process of the accounting month, and standard costing, which is done as part of the management accounting based on the product production schedule and fixed cost budget for the next period.

In primary allocation, the fixed costs of indirect departments and common line costs are allocated to cost centers, such as departments and lines, by direct working hours and number of personnel.

Specifically, the allocation rate is the direct labor cost per minute or the manufacturing overhead and depreciation cost per product.

Journal entries for inventory receipts and issued

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.

On the other hand, "using it as financial accounting for the cost management system" means generating journal entries for inventory receipts and disbursements and interfacing the full set of journal entries that appear in the process of calculating cost of sales to the accounting system.

In other words, the system generates the journal entries of the process of receiving and paying in sequence, i.e. material receipt, material consumption, product completion, product sale, and cost of sales, so there is no need to transfer the beginning of the month and the end of the month for trichotomy.

Purchase of materials (accounting system)

Although it can be obtained from the actual amount of materials purchased in the receipts and payments table, which is the result of cost calculation, it is usually managed by the accounting system.

Material consumption (cost management system)

This is the sum of the actual amount of material input and output in the receipts and payments table, which is the result of cost calculation.

Product turnover (cost management system)

Since the sum of the purchased main raw material cost of 2. and the direct labor and manufacturing overhead costs interfaced from the accounting system is the total manufacturing cost for the month, this is transferred to the product (assuming there is no work in progress).

Sales (accounting system)

It can be obtained from the actual sales amount of the receipts and payments, which is the result of cost accounting, but it is usually managed by the accounting system.

Cost of sales (cost management system)

This is the total cost of the sales inquiry, which is the result of costing.

End of month adjustment journal

Transfer to Other Account Journal

1. Deduction of production costs (transfer between production costs)
   The work loss incurred in the manufacturing process is deducted from the manufacturing cost and transferred to work loss expense through other account transfers. This is a transfer in the manufacturing cost. Cost of production = work in progress at the beginning of the month + manufacturing cost of the month - (other accounts + work in progress at the end of the month)
   • Dr. Loss due to spoiled work　2　　　　Cr.Transfer to other account　2
2. Deduction of cost of sales
   After the product is converted to cost of production, the work loss is transferred to SG&A expenses through a transfer to other accounts and deducted from cost of sales. Cost of sales = product at the beginning of the month + manufacturing cost of the month - (other accounts + end-of-month product)
   • Dr. Stock losses and shrinkage　2　　　　Cr.Transfer to other account　2

Inter-departmental journal entries for direct labor costs and manufacturing overhead

The direct labor and manufacturing overhead costs that are interfaced from the accounting system to the cost management system are allocated between departments in the cost management system, and then inter-departmental transfer journal entries are interfaced in the accounting system to see the profit and loss by department.