The difference between the gross average method and the trigonometric method in cost accounting
The difference between cost of production and cost of sales is the difference between the cost of a few minutes of product completed in the month or the cost of a few minutes of product shipped in the month.
Since cost of sales does not include any separate cost of production, the unit cost of sales is either the unit cost of the products shipped from the first inventory of the month or the unit cost of the products manufactured in the month.
Also, after the materials are put in, processing costs are accumulated during the manufacturing process, and everything that is less than a product is collectively called a work in progress.
- Direct material costs incurred on an input basis
⇒Total average unit price of materials x input quantity - Production-based incurred costs are production costs.
⇒Total average unit cost of input goods x input quantity + processing cost = Total average unit cost of product x manufacturing quantity - Cost of goods sold is cost of goods sold on a shipping basis.
⇒Total average unit price of the product x shipment volume
The current month's direct material costs, manufacturing costs, and cost of sales can also be calculated using the trichotomy method by holding down the end-of-month inventory and subtracting it from the beginning of the month and the expenses incurred during the month, as shown below.
- Direct material cost = Material in stock at the beginning of the month + Material purchased during the month - Material in stock at the end of the month.
- Manufacturing price = value of work in stock at beginning of month + (direct material cost + processing cost) - value of work at end of month.
- Gross sales price = Inventory at beginning of month + Manufacturing price - Inventory at end of month
If you make a mistake in entering the results, the cost based on the average method will not be calculated correctly.
If it is discovered at the end of the month that the wrong quantity of input materials was entered in the manufacturing result, the number of materials is forcibly adjusted by inventory adjustment (indirect goods in and out).
- When the actual quantity of input was entered as 1 item, it was increased by one digit to 10 items.
- As a result, the system inventory was significantly less than the actual shelves.
- The manufactured goods have already gone through the inspection process and cannot be modified after the acceptance label, which is controlled by a chronologically numbered serial number, has been attached.
- I had no choice, so I used inventory adjustments (indirect stock entry) to correct the system inventory to correct the numbers.
In this case, since the theoretical value on the system is nine units less than the actual number of shelves, the inventory quantity is adjusted by indirectly receiving nine units.
If the unit price at the time of inventory entry is evaluated using the total average unit price before the indirect entry, the total average unit price before and after the inventory adjustment will be almost the same, and the manufacturing cost will also be almost the same.
- The original and correct total average unit cost of materials and manufacturing costs
- Total Average Unit Price = (On Hand @ 100 x 10 + Purchases @ 140 x 5) / (10 + 5) = @ 113.33
- Manufacturing unit cost = @113.33 x 1 unit + processing cost = 113.3
- Total average unit price and manufacturing cost of materials when the input results are incorrectly entered
- Total Average Unit Price = (On Hand @ 100 x 10 + Purchases @ 140 x 5) / (10 + 5) = @ 113.33
- Production unit cost = @113.33x10pcs + processing fee0＝1133.3← Excessive cost
- When the unit price of materials at the time of warehousing is the total average unit price before warehousing
- Total Average Unit Price = (in stock @ 100 x 10 + purchase @ 140 x 5 + Inventory Adjustment@113.33ｘ9units)/(10 units + 5 units + 9 units) = @ 113.32
- Production unit cost = 113.32 x 10 + processing fee = 1133.2
- If the unit cost of materials at the time of storage is zero
- Total Average Unit Price = (On-hand @ 100 x 10 + Purchases @ 140 x 5 + Inventory Adjustment @ 0 x 9) / (10 + 5 + 9) = @ 70.83
- Production unit cost = @ 70.83 x 10 + processing fee = 708.3
Regardless of whether the unit price at the time of indirect receipt of materials is set to the total average unit price at that time (No. 3) or to zero (No. 4), the manufacturing cost of the product remains wrong, and the manufacturing cost of the product in the cost control system will not be corrected correctly unless the input results in the production control system are corrected.
Adjusted journal entries from the accounting side based on the trichotomy method
Although it is not possible to correctly adjust the cost of production of a product for management accounting purposes based on the weighted average method, it is possible to reclassify nine direct material costs that were overstated from financial accounting purposes based on the trichotomous method to SG&A expenses.
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- Total Average Unit Price = (in stock @ 100 x 10 + purchase @ 140 x 5 + Stock Adjustment@113.33ｘ9units)/(10 units + 5 units + 9 units) = @ 113.32
- Manufacturing price = 113.32 x 10 units + processing fee 0 - processing cost0-Stock Adjustment@113.32ｘ9units = 113.32
In the event of an over-accumulated material input, the excess direct material cost is deducted from the manufacturing cost by processing the lesser amount of material in the system. A decrease in direct material cost is indirectly transferred to material through other account transfer account.
- Dr. Material 1019.88 Cr. Material-Transfer to Other Account 1019.88
投入実績不足In this case, the shortage of material is reduced and the unconsumed direct material cost is increased through the other account transfer account. This is the same method as supplementary materials and sub-materials, which are not passed through the production control system, but are expensed in the accounting system as if they were stored in a warehouse and recorded as direct costs.
- Dr. Material-Transfer to Other Account 1019.88 Cr. Material 1019.88
The trichotomy calculates the month's accrual cost inductively from the result (end-of-month inventory), so when you correct an input error in the actual input at the time of production by adjusting inventory, you should pay attention to the following points.
- An error in the actual input performance will still result in an incorrect direct material cost as a percentage of the manufacturing cost unless the actual input performance itself is corrected, even if the inventory adjustment is made to match the number of actual shelves.
- Since the total average unit price is not affected by the delivery record and the inventory at the end of the month is reduced by the amount of the delivery, there is no change in direct material cost or production cost.
- Although the total average unit price is affected by the actual amount of entry, when the amount at the time of entry is valued at the total average unit price before adjustment, the total average unit price after adjustment changes very little.
- Excessive input results are deducted directly from the production cost by an accounting journal through a transfer to other accounts.