University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

443

Pages:

2
Author:

stud_ice13

Materials Cost Flow Overview 1. Purchase of Materials: o Receiving Report: When materials arrive, employees inspect them and complete a receiving report, recording quantity and cost. o Materials Ledger Card: The receiving report information is posted to a materials ledger card, which is a perpetual record updated with each purchase and usage entry. This ledger card helps keep track of material inventory and reorder points. o Example Entry: On March 4, Road Warriors purchases $2,750 of raw materials on credit, including both direct and indirect materials. This increases the Raw Materials Inventory account. 2. Use of Materials (Requisitions): o Materials Requisition Form: When materials are needed for production, a materials requisition form is prepared. For direct materials, it includes the job number, material type, and quantity required. If used as overhead, the requisition might specify “For General Factory Use.” o Direct vs. Indirect Materials:  Direct Materials (e.g., an alarm system for a custom vehicle): Costs are directly traced to a job and recorded on the specific job’s cost sheet.  Indirect Materials (e.g., electrical tape, glue): Costs cannot be directly traced to a job, so they are recorded in the Factory Overhead account. 3. Recording Direct Materials Usage: o Job Cost Sheets: Costs for direct materials flow directly to job cost sheets, helping managers track the specific materials used for each job. o Posting to Work in Process: The direct materials costs are transferred from Raw Materials Inventory to the Work in Process Inventory. o Example Entry: On March 8, one alarm system is requisitioned for Job B15. Road Warriors records this direct material in Work in Process Inventory, reducing the Raw Materials Inventory. Journal Entries for Materials Costs To capture these transactions, the following journal entries illustrate the flow of materials costs in Road Warriors’ job order costing: 1. Purchasing Materials on Credit: o Entry for materials purchased: plaintext Raw Materials Inventory Accounts Payable 2,750 2,750 This entry increases Raw Materials Inventory for purchased materials. 2. Using Direct Materials: o When materials are requisitioned for specific jobs, they are transferred from Raw Materials Inventory to Work in Process: o plaintext Work in Process Inventory Raw Materials Inventory 1,800 1,800 This entry reflects the direct materials cost being applied to jobs, which will be recorded on the job cost sheets. 3. Indirect Materials (if applicable): o Indirect materials requisitioned for general factory use are transferred to Factory Overhead instead of specific job cost sheets. o Example Problem Solution 1. Purchasing Direct Materials: plaintext Raw Materials Inventory Accounts Payable 1,200 1,200 2. Using Direct Materials on Jobs: plaintext Work in Process Inventory Raw Materials Inventory 500 500 Here, $200 of materials goes to Job 1 and $300 to Job 2. 3. Ending Balance of Raw Materials Inventory: o Calculation: Beginning balance ($200) + Purchases ($1,200) - Used ($500) = $900 remaining in Raw Materials Inventory. o