Production orders system as one of the costing systems applied in factories

Production orders system as one of the costing systems followed in manufacturing activities

What is the production orders system?

How do I link the production orders system as one of the cost systems with the financial accounting system especially if I was working on factories accounting and management software manufacturing costs?

What are the stages of application and the most important considerations in implementing the production orders system?

If you are a cost accountant in a factory that relies on the customer's order in its production
  The production is untypical, meaning that each product manufactured according to the client's specifications and criteria, the best cost system is the production order system
.

For example, if we are a factory, our job is based on manufacturing bedrooms, beds and sofas according to customer specifications and requests, or if we are an advertising company and design advertising signs and banners according to customers' orders, it is certain that the production order system will be the best

How do I apply the production orders system at my work?

Regardless of the costing system followed, whether it is the production order system or the production stages system, we all know that the cost of any product in the world consists of 3 basic elements (direct materials 'direct wages' and the product's share of other industrial costs) and if I can know the cost of my product from With these elements, I can easily lower the profit margin I want or set the price at which I want to sell.
Let us know step by step how to determine the cost of the production order from each element of the costs
Or the first stage in the application of productivity orders system.
 

First, how do I determine the cost of the production order from direct materials?

At the beginning, I am supposed to buy my raw materials from the supplier and put them in the raw materials store with this transaction record under this entry

1,000,000  from raw material account / stock (for example wood

To

1,000,000 account / payable suppliers


And after that, we pay out raw materials for the productivity orders of my own under the exchange permits, in which we write the number of the production order with which the raw materials have been disbursed from the stores
, And this is very important because through these permissions I know the cost of the production order from the raw materials
. And by proving the exchange process with this entry
100,000 Account / in-progress output (Command # 15) work in process_jop15
To
the raw material account / stock 100,000

Thus, I can say that I have withdrawn from the warehouse raw materials costing 100,000 EGP and transferred them to production order No. 15.
Until now, we knew that the production order cost 100,000 EGP from direct materials (and if I return something of them to the stores, I must drop it from the order cost by reversing the entry)

Second: How can I specify the cost of the production order from direct labor?

This is very easy. All we have to do is see the number of work hours that the production order took and the rate of the hourly wage (meaning how much one hour cost). This is done through a card or a statement where I write how many hours each laborer worked on this matter and how much does one hour cost. So at the end I arrive at the total wage cost (suppose we are here to produce a locker for the client. The carpenter, Uncle Ahmed has 5 hours of cutting. The average hourly wage is 20 pounds, and Uncle Hassan the painter worked in it 7 hours. The average hourly wage is 10 pounds) and in the end we arrive at the total direct wages and confirm it with this entry
5,000 EGP (for example) from Account / Production in Progress _ Production Order No. 15
To account / wage payable
Until now, we knew that the production order cost 100,000 pounds direct raw materials and 5,000 pounds direct wages.
And if you are working on the Factor Accounting Program from Accflex, the subject will be more flexible
 

 How do we know the cost of the production order from other manufacturing overheads?

The indirect or other expenses are not directly related to this productive order, for example, the salaries of production supervisors, indirect materials, machinery depreciation, etc. It is assumed that, according to the size of the indirect costs, they will be paid every month and on the basis of which they are carried or distributed to the number of orders I have during this month
. For example, if I took out a few nails and a few wood glue from the auxiliary store, for 10,000 pounds in this case, I distribute these costs to my orders, but the problem is that in an order I took more materials than the second one, don’t worry about the solution
. I am supposed to allocate indirect costs using an allocation basis
In this case the nails use direct material costs as the basis for distribution, meaning that the order 15 takes raw materials for 100,000 and the order 16 takes materials for 200 thousand and the order 17 takes materials with 300 thousand. Here the distribution ratios will be 1: 2: 3 and here we will find that the share of the order 15 of the indirect materials is1700 approximately

And we prove that with this entry

From
1700 account / production in progress_ command 15
To
1700 (indirect material) account.

How to distribute indirect costs

The same applies to the rest of the indirect costs such as depreciation, electricity, water, etc., and every component is used for a different distribution basis, and in the end, collect the order from this assignment, and we assume that 1000 pounds are released, and then you go to your financial manager Or even the chairman of the board of directors and with you all the papers, invoices and reports, and you state that the production order cost 100,000 raw materials and cost 5,000 pounds for wages and 1,000 pounds for other expenses, with a total cost of 106,000 pounds. If we like to sell it, we can reduce 25% profit margin and the price to the customer is 132,500

The production orders system is one of the easiest costing systems applied in many activities, which differs slightly from the production stages system.
Thus, we have explained briefly and in a general way the production orders system and its application as one of the followed cost systems
 In the following articles, we will talk about the application of the production orders system in the various activities that you operate with, such as the activity of the Ready Mix Accounting Program

And its application to the Accflex manufacturing accounting program, and how to link it with the general accounts program