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Covering Page Title and Reg Numbers
History Of The Company The name SITARA emerged on the horizon of Pakistan's textile industry in 1959. A modest start with limited financial and other resources available, soon flourished to bear fruit owing to the determination and dedication of its workers. An honest approach in dealing, within the organization and with Customers, Vendors and related agencies, took the group a step ahead and is a vital factor contributing to its' success today. At the moment Sitara Group is the leading
industrial group in Pakistan, owning assets more than US $4 billion. The Sitara Group of Industries deals in Textile, Chemicals, Energy, health and education sectors .
Cost Accounting System (Flow Chart)
Financial Accounting System (Flow Chart)
Number of Staff Involved In The Manufacturing Department :
Recording of Raw Material, Direct Labour & FOH Costs (Procedures & Methods) Sample Job Cost Sheet Date Initiated: March 2 Date Completed:
Job Number: 2B47 Department: Milling Item: Special Order Coupling For Stock: Direct Materials Req. No Amount 14873 5280 14875 4048 14912 1904 --------Rs.11232 =====
Ticket 843 846 850 851
Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
*27512/2units =13756 per unit
Units Completed: Direct Labor Hours Amount 20 3600 33 4800 19 1680 22 4320 -------------94 Rs.14400 ==== =====
11232 14400 1880 27512 $ 900*
Manufacturing Overhead Hours Rate Amount 94 20/DLH 1880
Units Shipped Date Number Balance March 8 -2
Entries of Recording Raw Material
Raw Materials purchased of credit Raw Material Accounts Payable To record Raw Material purchased on account. Raw Material returns to the supplier on credit Accounts Payable xxx Raw Material - Returns To record defective material return to the supplier.
xxx xxx
xxx
Raw Material discount availed from the supplier on credit Accounts Payable xxx Raw Material – Discount To record the discount availed from supplier Direct Material used in Production Work in process xxx Raw Material To record the Direct Material used in production.
xxx
xxx
Entries of Recording Labor
The cost of labor is recorded on a daily basis and the salary is given at the end of the month. Let us take the example of the Manufacturing Department, which is the first department of the manufacturing process. The labor rate (salary of the craftsman) is Rs.1,000 per day. Direct Labor applied to production Work in process xxx Accrued Factory Payroll To record the direct labor applied to production Salaries paid to labor Accrued Factory Payroll Cash To record the salaries paid to labor
xxx
xxx xxx
Entries of Recording FOH Sitara Company computes Factory Overhead Costs on a job by the following formula Factory Overhead Cost = Total Direct Material Cost + Total Direct Labor Cost * 10% For example, if a particular furniture has total DMC of Rs. 100,000 and a total DLC of Rs.20,000, therefore the total Factory Overhead Cost would be FOC = (100,000 + 50,000) * 10% FOC = Rs.15,000 This 10% factory overhead includes ➢ Repair & Maintenance ➢ Carriage ➢ Indirect Material ➢ Indirect Labor ➢ Electricity ➢ Entertainment (e.g., drinks, biscuits, etc for customers) ➢ Income Tax ➢ Depreciation ➢ Security ➢ Drinking Water ➢ Stationary There can be more factory overheads then the above mentioned.
Journal Entries to Record Flow of Direct Labor Cost: Daily time tickets are also source documents that are used as the basis for labor cost entries into the accounting department. Following journal entry is passed to record direct and indirect labor costs: Work-in-process---------------Dr (for direct labor) Manufacturing overhead----Dr (for indirect labor) Salaries and wages payable----Cr.
Sample Employees Time Ticket Time Ticket No.843 Employee: Mary Holden Ended Started 12:00 7:00 2:30 12:30 3:30 3:30
Date: March 3 Station: 4 Time Completed Rate 5.0 $9 2.0 9 1.0 9
Amount $45 18 9
Job Number 2B47 2B50 Maintenance
Materials: Materials are drawn from the storeroom using a material requisition form. Materials can be added in any department, although it is not unusual for materials to be added only in the first department, with subsequent department adding only labor and overhead in the partially completed units move along toward completion. Suppose Five Star company produces Cream Soda and has two processing departments. Some material (i.e. water, flavors, sugar, and carbon dioxide) is added in the Formulating department (first department) and some material (i.e. bottles, caps, and packing materials) is added in the bottling department (Second department). The journal entry to record the materials used in first department, formulating department, is as follows: Work in Process--Formulating department (Dr.)---XXX Raw Materials (Cr.) ----------------------------XXX If other materials are subsequently added in the second department as in XYZ company the entry is the following: Work in Process--Bottling department (Dr.)---XXX Raw Materials (Cr.) ------------------------XXX Labor Costs: In process costing, labor costs are traced to departments--not to individual jobs. The following journal entry will record the labor costs in the formulating department at XYZ company. The following journal entry will record the labor costs in the formulating department at XYZ Ltd. Work in Process-Formulating department (Dr.)---XXX Salaries and Wages Payable (Cr.)---------------XXX Overhead Costs: In process costing predetermined overhead rates are usually used. Each department has its own separate rate. Overhead cost is then applied to units of product as they move through the department. A journal entry such as the following records the overhead cost in the formulating department. Work in Process-Formulating department (Dr.)---XXX Manufacturing overhead (Cr.)--------------------XXX Completing the cost flows: Once processing has been completed in a department, the units are transferred to the next department for further processing. The following journal entry is passed to transfer the partially completed units to the bottling department. Work in Process-Bottling department (Dr.)----XXX Work in Process-Formulating department (Cr.)--XXX Transfer of cost to Finished Goods Inventory: After processing has been completed in the final department, the costs of the completed units is transferred to the Finished Goods Inventory account as shown by the following journal entry. Finished Goods (Dr.)----------------XXX Work in Process-Bottling department (Cr.)-XXX
Transfer of Cost to Cost of Goods Sold: Finally, When a customer's order is filled and units are sold, the cost of the units sold is transferred to the Cost of Goods Sold. Cost of Goods Sold (Dr.)-------------XXX Finished Goods (Cr.)------------------XXX
Recording of Direct Labour Cost (Procedures & Methods) Recording of Factory Over Head Cost (Procedures & Methods)
Cost Accouting System
History Of The Company The name SITARA emerged on the horizon of Pakistan's textile industry in 1959. A modest start with limited financial and other resources available, soon flourished to bear fruit owing to the determination and dedication of its workers. An honest approach in dealing, within the organization and with Customers, Vendors and related agencies, took the group a step ahead and is a vital factor contributing to its' success today. At the moment Sitara Group is the leading
industrial group in Pakistan, owning assets more than US $4 billion. The Sitara Group of Industries deals in Textile, Chemicals, Energy, health and education sectors .
Cost Accounting System (Flow Chart)
Financial Accounting System (Flow Chart)
Number of Staff Involved In The Manufacturing Department :
Recording of Raw Material, Direct Labour & FOH Costs (Procedures & Methods) Sample Job Cost Sheet Date Initiated: March 2 Date Completed:
Job Number: 2B47 Department: Milling Item: Special Order Coupling For Stock: Direct Materials Req. No Amount 14873 5280 14875 4048 14912 1904 --------Rs.11232 =====
Ticket 843 846 850 851
Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
*27512/2units =13756 per unit
Units Completed: Direct Labor Hours Amount 20 3600 33 4800 19 1680 22 4320 -------------94 Rs.14400 ==== =====
11232 14400 1880 27512 $ 900*
Manufacturing Overhead Hours Rate Amount 94 20/DLH 1880
Units Shipped Date Number Balance March 8 -2
Entries of Recording Raw Material
Raw Materials purchased of credit Raw Material Accounts Payable To record Raw Material purchased on account. Raw Material returns to the supplier on credit Accounts Payable xxx Raw Material - Returns To record defective material return to the supplier.
xxx xxx
xxx
Raw Material discount availed from the supplier on credit Accounts Payable xxx Raw Material – Discount To record the discount availed from supplier Direct Material used in Production Work in process xxx Raw Material To record the Direct Material used in production.
xxx
xxx
Entries of Recording Labor
The cost of labor is recorded on a daily basis and the salary is given at the end of the month. Let us take the example of the Manufacturing Department, which is the first department of the manufacturing process. The labor rate (salary of the craftsman) is Rs.1,000 per day. Direct Labor applied to production Work in process xxx Accrued Factory Payroll To record the direct labor applied to production Salaries paid to labor Accrued Factory Payroll Cash To record the salaries paid to labor
xxx
xxx xxx
Entries of Recording FOH Sitara Company computes Factory Overhead Costs on a job by the following formula Factory Overhead Cost = Total Direct Material Cost + Total Direct Labor Cost * 10% For example, if a particular furniture has total DMC of Rs. 100,000 and a total DLC of Rs.20,000, therefore the total Factory Overhead Cost would be FOC = (100,000 + 50,000) * 10% FOC = Rs.15,000 This 10% factory overhead includes ➢ Repair & Maintenance ➢ Carriage ➢ Indirect Material ➢ Indirect Labor ➢ Electricity ➢ Entertainment (e.g., drinks, biscuits, etc for customers) ➢ Income Tax ➢ Depreciation ➢ Security ➢ Drinking Water ➢ Stationary There can be more factory overheads then the above mentioned.
Journal Entries to Record Flow of Direct Labor Cost: Daily time tickets are also source documents that are used as the basis for labor cost entries into the accounting department. Following journal entry is passed to record direct and indirect labor costs: Work-in-process---------------Dr (for direct labor) Manufacturing overhead----Dr (for indirect labor) Salaries and wages payable----Cr.
Sample Employees Time Ticket Time Ticket No.843 Employee: Mary Holden Ended Started 12:00 7:00 2:30 12:30 3:30 3:30
Date: March 3 Station: 4 Time Completed Rate 5.0 $9 2.0 9 1.0 9
Amount $45 18 9
Job Number 2B47 2B50 Maintenance
Materials: Materials are drawn from the storeroom using a material requisition form. Materials can be added in any department, although it is not unusual for materials to be added only in the first department, with subsequent department adding only labor and overhead in the partially completed units move along toward completion. Suppose Five Star company produces Cream Soda and has two processing departments. Some material (i.e. water, flavors, sugar, and carbon dioxide) is added in the Formulating department (first department) and some material (i.e. bottles, caps, and packing materials) is added in the bottling department (Second department). The journal entry to record the materials used in first department, formulating department, is as follows: Work in Process--Formulating department (Dr.)---XXX Raw Materials (Cr.) ----------------------------XXX If other materials are subsequently added in the second department as in XYZ company the entry is the following: Work in Process--Bottling department (Dr.)---XXX Raw Materials (Cr.) ------------------------XXX Labor Costs: In process costing, labor costs are traced to departments--not to individual jobs. The following journal entry will record the labor costs in the formulating department at XYZ company. The following journal entry will record the labor costs in the formulating department at XYZ Ltd. Work in Process-Formulating department (Dr.)---XXX Salaries and Wages Payable (Cr.)---------------XXX Overhead Costs: In process costing predetermined overhead rates are usually used. Each department has its own separate rate. Overhead cost is then applied to units of product as they move through the department. A journal entry such as the following records the overhead cost in the formulating department. Work in Process-Formulating department (Dr.)---XXX Manufacturing overhead (Cr.)--------------------XXX Completing the cost flows: Once processing has been completed in a department, the units are transferred to the next department for further processing. The following journal entry is passed to transfer the partially completed units to the bottling department. Work in Process-Bottling department (Dr.)----XXX Work in Process-Formulating department (Cr.)--XXX Transfer of cost to Finished Goods Inventory: After processing has been completed in the final department, the costs of the completed units is transferred to the Finished Goods Inventory account as shown by the following journal entry. Finished Goods (Dr.)----------------XXX Work in Process-Bottling department (Cr.)-XXX
Transfer of Cost to Cost of Goods Sold: Finally, When a customer's order is filled and units are sold, the cost of the units sold is transferred to the Cost of Goods Sold. Cost of Goods Sold (Dr.)-------------XXX Finished Goods (Cr.)------------------XXX
Recording of Direct Labour Cost (Procedures & Methods) Recording of Factory Over Head Cost (Procedures & Methods)
Cost Accouting System
