Page 172 - Plant design and economics for chemical engineers

146 PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS

distribution, selling, financing, and research and development costs included
under general expenses. Manufacturing costs include direct production costs,
fixed charges, and plant overhead.
Each of the subdivided groups can be classified further as indicated in
Chap. 6. For example, direct production costs can be broken down into costs for
raw materials, labor, supervision, maintenance, supplies, power, utilities, labora-
tory charges, and royalties.
Each business corporation has its own method for distributing the costs on
its accounts. In any case, all costs are entered in the appropriate journal
account, posted in the ledger, and ultimately reported in a final cost sheet or
cost statement.

Accumulation, Inventory, and
Cost-of-Sales Accounts
In general, basic cost-accounting methods require posting of all costs in so-called
accumulution accounts. There may be a series of such accounts to handle the
various costs for each product. At the end of a given period, such as one month,
the accumulated costs are transferred to inventory accounts, which give a
summary of all expenditures during the particular time interval. The amounts of
all materials produced or consumed are also shown in the inventory accounts.,
The information in the inventory account is combined with data on the amount
of product sales and transferred to the cost-of-sales account. The cost-of-sales
accounts give the information necessary for determining the profit or loss for
each product sold during the given time interval. One type of inventory account
is shown in Fig. 5-6, and a sample cost-of-sales account is presented in Fig. 5-7.
When several products or by-products are produced by the same plant,
allocation of the cost to each product must be made on some predetermined
basis. Although the allocation of raw-material and direct labor costs can be
determined directly, the exact distribution of overhead costs may become quite
complex, and the final method depends on the policies of the particular concern
involved.

Materials Costs
The variation in costs due to price fluctuations can cause considerable difficulty
in making the transfer from accumulation accounts to inventory and cost-of-sales
accounts. For example, suppose an accumulation account showed the following:

ACCUMULATION ACCOUNT
Item: Chemical A for use in producing product X
Date Balance Delivered for
19% Received cost on hand use in process
May 2 5,000 l b SO.O36O/Ib 5,000 l b
May 15 10,000 l b %O.O39O/lb 15,000 l b
May 17 9,000 l b 6,000 l b