{"id":67147,"date":"2017-01-15T19:15:42","date_gmt":"2017-01-15T12:15:42","guid":{"rendered":"https:\/\/bahtera.jp\/accounting-costing\/"},"modified":"2025-03-20T13:09:20","modified_gmt":"2025-03-20T06:09:20","slug":"accounting-costing","status":"publish","type":"post","link":"https:\/\/bahtera.jp\/en\/accounting-costing\/","title":{"rendered":"Costs Incurred Based on Production Results and Input Results in a Cost Management System"},"content":{"rendered":"

Even if materials are received, if they are not used, the current month\u2019s incurred costs are 0. In this sense, the current month\u2019s incurred costs can be expressed as \u201cthe cost of materials used in the current month = incurred costs based on input.\u201d If there is no manufacturing, the manufacturing cost is also 0, meaning the manufacturing cost can be expressed as \u201cthe cost of items completed in the current month = incurred costs based on production results.\u201d If there are no sales, the cost of goods sold is also 0, meaning the cost of goods sold can be expressed as \u201cthe cost of items sold in the current month = incurred costs based on shipment results.\u201d
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Cost Management in Indonesia<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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Mass production factories, such as two- and four-wheeler parts manufacturers common in Indonesia, have multiple manufacturing processes. In such cases, processing costs are calculated for each process, and the method of aggregating these costs into the product is called process costing. In this approach, labor costs and manufacturing overheads are recorded at the end of the month by the accounting department, transferred to inventory assets, and then allocated accordingly. On the other hand, in factories producing custom-made items under individual order production, job order costing is used, where costs are aggregated by order number or project number. In this case, … <\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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Work-in-Process Appears as an End-of-Month Balance on the B\/S, Not the P\/L<\/h2>\n

When I first started studying costing, it took me quite a while to understand that manufacturing costs are the costs of producing products.
\nAfter finally grasping that manufacturing costs are \u201cthe costs of producing products,\u201d what puzzled me next was, \u201cWhy is it that material costs, manufacturing costs, and cost of goods sold are calculated using the three-way method, but the manufacturing costs of work-in-process, which lies in between, are not calculated?\u201d<\/p>\n

\n
\n
    \n
  1. Beginning Material Inventory + Material Purchases This Month – Ending Material Inventory = Material Costs Incurred This Month<\/li>\n
  2. Beginning Work-in-Process Inventory + (Material Costs Incurred This Month + Processing Costs This Month) – Ending Work-in-Process Inventory = Product Manufacturing Costs This Month<\/li>\n
  3. Beginning Product Inventory + Product Manufacturing Costs This Month – Ending Product Inventory = Cost of Goods Sold This Month<\/li>\n<\/ol>\n<\/div>\n<\/div>\n
    \"Work-in-Process

    The aggregated costs of work-in-process at level 0 correspond to incurred costs.<\/p><\/div>\n

    Since the purpose of financial accounting is to prepare the P\/L (Profit and Loss Statement) and B\/S (Balance Sheet), calculating material costs incurred, manufacturing costs, and cost of goods sold is sufficient. Processing costs need only be allocated to products for the P\/L to be complete. However, the ending balance of work-in-process that appears on the B\/S includes only the material cost portion.<\/p>\n

    In Accounting, Costs Incurred This Month Correspond to Work-in-Process Manufacturing Costs<\/h2>\n

    From an asset perspective, work-in-process is the state between materials and finished products.<\/p>\n

    \n
    \n
      \n
    • Materials \u21d2 In Process (Material Cost Recognition + Processing Costs Incurred) \u21d2 Products<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

      In other words, once materials are used and their costs are recognized, they become work-in-process, and processing costs are added on top of that.
      \n\u201cWhat becomes work-in-process this month\u201d is synonymous with \u201cwhat is recognized as an expense this month,\u201d and this corresponds to work-in-process manufacturing costs.
      \nThe costs incurred this month, namely \u201cmaterial costs incurred this month + processing costs incurred this month,\u201d are exactly the work-in-process manufacturing costs for the month.
      \nThe manufacturing costs calculated as \u201ctotal average unit price of work-in-process \u00d7 quantity + direct labor costs + manufacturing overhead\u201d are, after adjusting for ending inventory, the same as the result of \u201cbeginning work-in-process inventory + costs incurred this month – ending work-in-process inventory.\u201d<\/p>\n

      \n
      \n
        \n
      1. Beginning Material Inventory + Material Purchases This Month – Ending Material Inventory = Material Costs Incurred This Month<\/li>\n
      2. Beginning Work-in-Process Inventory + Work-in-Process Manufacturing Costs This Month – Ending Work-in-Process Inventory = Product Manufacturing Costs This Month<\/li>\n
      3. Beginning Product Inventory + Product Manufacturing Costs This Month – Ending Product Inventory = Cost of Goods Sold This Month<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

        Calculating the Ending Balance of Work-in-Process<\/h2>\n

        Now, if there arises a need to allocate processing costs, which are currently allocated only to products, to work-in-process as well, the costs incurred must be apportioned between what becomes products and what remains as work-in-process.
        \nMaterial costs can be apportioned based on the input quantity as usual, but since processing costs are apportioned to different forms\u2014products and work-in-process\u2014it becomes necessary to convert work-in-process into product equivalents based on the degree of completion, which is quite a challenging task.
        \nThis is where a cost management system comes into play. One of the financial accounting purposes of implementing a cost management system is to calculate the ending balance of work-in-process with allocated processing costs\u2014a task that is labor-intensive when done manually. To handle the apportionment of processing costs and the allocation of common materials that cannot be addressed by the three-way method, the total average method is used.<\/p>\n

        Costs Incurred for Common Materials That Cannot Be Calculated by the Three-Way Method<\/h2>\n

        For common materials, the three-way method can calculate the costs incurred this month from beginning inventory, purchases this month, and ending inventory. However, since there is no amount based on input results, it is impossible to calculate the costs incurred per item.
        \n\"Costs
        \nWith the total average method, not only can the costs incurred for common materials be calculated, but the manufacturing costs per product can also be derived from the parent-child relationship of input results.<\/p>\n

        <\/div>\n
        \n
        \n
          \n
        • Costs Incurred for Common Materials
          \nCommon Material Input Result Quantity \u00d7 Total Average Unit Price<\/li>\n
        • Portion of Common Material Costs Included in Product A Manufacturing Costs
          \nCommon Material Usage Result Quantity \u00d7 Total Average Unit Price<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

          In Accounting Systems, Costs Incurred This Month Are \u201cMore Than Material Costs but Less Than Manufacturing Costs\u201d<\/h2>\n

          Since the ultimate goal of an accounting system is to prepare the P\/L and B\/S, it is not equipped with an item master.<\/p>\n

          \n
          \n
            \n
          1. Beginning Material Inventory + Materials Purchased This Month – Material Costs Incurred (Portion That Became Work-in-Process) = Ending Material Inventory<\/li>\n
          2. Beginning Work-in-Process Inventory + (Material Costs Incurred + Processing Costs Incurred) – Manufacturing Costs (Portion That Became Products) = Ending Work-in-Process Inventory<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

            In accounting terms, material costs are incurred when materials are used. Of these, the portion that becomes products is recorded as manufacturing costs on the P\/L, while the portion that does not become products is recorded as work-in-process in the ending work-in-process inventory on the B\/S.
            \nIn other words, the costs incurred in an accounting system encompass everything \u201cmore than material costs but less than manufacturing costs,\u201d all of which correspond to costs incurred to produce work-in-process.
            \n\"In<\/p>\n

            Costs Incurred This Month Based on Production Results in a Cost Management System<\/h2>\n

            However, in a cost management system, costs incurred are calculated for each work-in-process item as \u201ctotal average unit price of input items \u00d7 input quantity + processing costs of the current process.\u201d As a result of cost accounting, the costs incurred per item and the total average unit price are maintained by cost category (direct material costs, direct labor costs, manufacturing overhead).<\/p>\n

            \n
            \n
              \n
            1. Beginning Material Inventory + Materials Purchased This Month – Material Costs Incurred (Portion That Became Work-in-Process 1) = Ending Material Inventory<\/li>\n
            2. Beginning Work-in-Process 1 Inventory + (Material Costs Incurred + Processing Costs Incurred) – Work-in-Process 2 Manufacturing Costs (Portion That Became Work-in-Process 2) = Ending Work-in-Process 1 Inventory<\/li>\n
            3. Beginning Work-in-Process 2 Inventory + Work-in-Process 2 Manufacturing Costs – Manufacturing Costs (Portion That Became Products) = Ending Work-in-Process 2 Inventory<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

              The costs incurred this month managed by item in a cost management system are work-in-process manufacturing costs. When the item happens to be a product, they become manufacturing costs, and these are cumulative amounts aggregated sequentially from the initial process.
              \n\"Costs<\/p>\n

              Costs Incurred This Month Based on Input Results in a Cost Management System<\/h2>\n

              The term \u201ccosts incurred\u201d in accounting refers to costs incurred this month, with the ending balance that does not become products summarized as \u201cwork-in-process.\u201d However, in a cost management system, it refers to the work-in-process manufacturing costs per item code.
              \nIn cases where there is a structure such as \u201cWork-in-Process 1 \u21d2 Work-in-Process 2 \u21d2 Product,\u201d the costs incurred at each process are managed by cost category.<\/p>\n

              \n
              \n
                \n
              1. Initial Process: Material Costs and Processing Costs 1 Incurred \u21d2 Work-in-Process 1<\/li>\n
              2. Next Process: Processing Costs 2 Incurred \u21d2 Added to Work-in-Process 1 to Become Work-in-Process 2<\/li>\n
              3. Final Process: Processing Costs 3 Incurred \u21d2 Added to Work-in-Process 2 to Become Products<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

                To create a cost list per item by structure, it is necessary to manage the costs incurred at each process by cost category.
                \n\"Costs<\/p>\n

                Tables Holding Calculation Results in a Cost Management System<\/h2>\n

                Costs incurred based on production results are the manufacturing costs of work-in-process or products, while costs incurred based on input results become the costs incurred this month. Costs incurred this month do not necessarily become manufacturing costs and may remain as ending work-in-process inventory.
                \n\"Tables
                \nA table storing items with beginning inventory and purchase (production) quantities as level 0, along with a table storing their costs by category, generates a cost list by item (production result-based). A table storing the input quantities of levels 1 and below, including level 0, and a table storing their costs by category generate the detailed cost breakdown (input result-based).<\/p>\n","protected":false},"excerpt":{"rendered":"

                Even if materials are received, if they are not used, the current month\u2019s incurred costs are 0. In this sense, the current month\u2019s incurred costs can be expressed as \u201cthe cost of materials used in the current month = incurred costs based on input.\u201d If there is no manufacturing, the manufacturing cost is also 0, meaning the manufacturing cost can be expressed as \u201cthe cost of items completed in the current month = incurred costs based on production results.\u201d If there are no sales, the cost of goods sold is also 0, meaning the cost of goods sold can be expressed as \u201cthe cost of items sold in the current month = incurred costs based on shipment results.\u201d<\/p>\n","protected":false},"author":2,"featured_media":81322,"parent":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[624],"tags":[],"class_list":["post-67147","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cost-management"],"_links":{"self":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/67147","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/comments?post=67147"}],"version-history":[{"count":0,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/67147\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media\/81322"}],"wp:attachment":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media?parent=67147"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/categories?post=67147"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/tags?post=67147"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}