Page 145 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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or stages of a product.
•A materials requisition form on which is recorded all the
materials actually issued to the job, including materials
that might have been put into production and then dam-
aged or scrapped and the materials then issued to replace
them. These details may be later transferred to a job cost
sheet.
• The job cost sheet, either paper or electronic, that follows
a job through the factory and on which actual production
costs are recorded as they are incurred. This may include
labor details, precluding the strict need for timecards
except as an audit check that all hours paid for were
charged to jobs or otherwise accounted for appropriately.
While individual companies may have their own versions of
these tools, the objective remains the same: to accumulate, on
the one hand, the labor and materials that were intended to be
consumed to complete the job and, on the other hand, the labor
and materials that were actually consumed to complete the job.
The differences will later be analyzed to help managers under-
stand why the actual costs incurred differed from the expected
costs. See “Manufacturing Cost Variances” later in this chapter
for more insight into this kind of analysis.
Process costing, by
contrast, is much simpler,
Bill of materials A listing
due to the continuous
of all the individual parts
and components that go nature of the manufactur-
into the manufacture of a product, ing process. The account-
including how many of each item of ing department collects all
raw materials.This document is used the costs incurred by a
to purchase and then assemble the
particular manufacturing
pieces to produce a given quantity of department for each man-
finished goods.
ufacturing process carried
out in that department and
groups them into essentially two categories: direct materials and
conversion cost.
Conversion cost is the sum of all the direct labor and manu-