SUMMARIZED PROCEDURES FOR STORING AND ISSUING MATERIALS

1. To safeguard its investment on storing and issuing materials, an effective control system should be
adopted by the company.
2. Materials are issued only upon receipt of materials requisition and recorded on the materials ledger
card, materials requisition journal and the job cost sheet or departmental overhead analysis sheet. It
must be carefully identified, stored, and recorded by the storeroom staff.
3. To record and control both the receipts and issues of materials the perpetual inventories system
should be used. Entries are recorded on materials ledger cards using the following procedures:
 Materials purchased: Recorded as goods are received. Data taken from the purchase order and
receiving report.
 Materials issued: Recorded as goods are issued. Data taken form materials requisition.
 Materials returned to storeroom: Recorded as goods are returned. Data taken from returned
materials report.
 Materials returned to supplier: Recorded as goods are sent back. Data taken from the debit
memorandum.
4. Summary posting of entries are made at the end of period in Materials account in the general ledger
as follows:
 Materials purchased: Data taken from voucher register’s Materials column.
 Materials issued: Data taken from total of Materials column of materials requisition journal.
 Materials returned to storeroom: Data taken from total of Materials column in returned materials
journal.
 Materials returned to supplier: Data taken from the total entry in parenthesis of the voucher
register’s Materials column.
5. At the end of the period, the balance of the Materials account should equal the total balance of the
Materials account should equal the total balance on the materials ledger card.

SUMMARY OF PRINCIPLES AND PROCEDURES

Companies use the process cost system that manufacture on a continuous basis only one or a few
products that are homogeneous.
 This system is ideal in the accounting for costs in mass-production.
 This is used by companies such as soft drink and bottling, paint manufacturer, and petroleum
refining.
 Usually in manufacturing operations using process cost system, goods are produced for stock; one
unit of production is similar to the others; factory procedures are standardized; and goods move
through production processes in a constant stream.
 The costs of materials, labor and overhead are accounted for in the usual manner.
The procedures for charging costs to production in a process costs system follow those in the job order
system except that there is no job costs sheet.
 Direct materials placed in production as well as direct labor costs are charged to departmental
Work in Process accounts.
 Indirect materials issued to producing departments and indirect labor costs in a producing
department are charged to Manufacturing Overhead Control account.
 At the end of the period Manufacturing Overhead is closed into the departmental Work in Process
accounts.
After costs are accumulated in Work in Process accounts, production data must be assembled to
compute the unit cost.
  The month production report provides information about the quantity stated, quantity
transferred in and out, and the quantity and stage of completion of products in process at the
end of the month.
 The cost accountant then computes the equivalent units of production to show the amount of
work done on both completed and partially processed units in each department. Equivalent
units of production reflect the number of units that could have been completely produced from
the costs incurred.
Using the costs figures and the equivalent production unit figures, a cost of production report for each
department is prepared.

The cost of production report has two main schedules. The quantity schedule and the cost schedule.
 The first part of the Quantity Schedule provides unit data showing units to be accounted for. The
second part explains what happened to the units that were handled in that department.
Generally, the products are either transferred out of the department or are in the ending work
in process inventory in various stages of completion.
 In the first part of the Cost Schedule, total costs are assembled and the cost per equivalent unit
of production for each cost category is computed. In addition, the cumulative cost per
equivalent unit is calculated.
 The second part of the Cost Schedule accounts for the costs. Some costs relate to units that are
transferred to the next department or to finished goods. The total of costs transferred out is
computed by multiplying the cumulative cost per equivalent unit by the number of units
transferred out. Other costs remain as part of the work in process. The cost of ending work in
process is the unit cost of each cost category multiplied by the number of equivalent units of
that cost category still in process.
The total cost of goods transferred from one department to the next or to finished goods, as shown in
the cost of production report, is recorded by a journal entry and posted to the general ledger.