If any discounts or allowances are taken the raw

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If any discounts or allowances are taken, the Raw Materials inventory is credited. Raw Materials Inventory is a control account; an inventory subsidiary ledger is maintained to control details such as quantity and cost of each inventory item.When the materials are needed for a job, the Production Manager will prepare a pre-numberedmaterials requisition slip, allowing the materials to be forwarded to the factory for production. The appropriate employee, usually a supervisor, approves the requisition. The materials issued may be used directly on a job (direct materials to Work in Process account) or may be considered indirect materials (to Factory Overhead account). The journal entry to reduce Raw Materials inventory is prepared from the Accounting Office’s copies of the requisitions. Requisitions for direct materials are also posted on the job cost sheets. From a summary of the purchase requisitions for McCaffrey Construction Co. for March, direct materials totaled $53,000 and indirect materials totaled $4,800; the entry to transfer materials to the job in production is:Work in Process53,000Factory Overhead4,800Raw Materials57,800Note that the direct materials posted to the individual job sheets for March should total $53,000.Factory Labor CostsLabor includes both the direct labor spent working on production and indirect labor considered overhead. Accounting for labor helps ensure employees are paid the correct amount and ensure proper allocation of labor costs to specific jobs or overhead by checking clock cards and time tickets.Timesheets (time cards or time tickets) are used to track each employee’s work. Totals are accumulated regularly and are used to calculate and record gross pay, deductions, and fringe benefits.McCaffrey Construction Co. incurs $40,000 of factory labor costs ($35,000 relates to wages payable and $5,000 relates to payroll taxes payable). The entry to record labor costs is:Work in Process40,000Wages Payable40,000Factory Overhead CostsFactory overhead costs consist of all costs except direct materials and direct labor. An example is factory costs, such as depreciation on factory building, utilities, property
taxes, and insurance. The account Factory Overhead is used to accumulate these costs. Later these costs will be allocatedto the specific jobs. Assume McCaffrey Construction incurs overhead costs. The entry to record factory overhead is:Factory Overhead10,800Prepaid Insurance2,400Accounts Payable800Utilities Payable2,600Accumulated Depreciation5,000In contrast to direct materials and direct labor, overhead costs cannot be traced and applied to specific jobs; in other words, overhead costs relate to the whole production process, not a specific job.

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