Cost Accounting for Beer Production

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Direct materials
Direct labor and manufacturing overhead
Cost flow
Works Cited

Introduction

This memorandum seeks to provide a guideline that outlines the costs associated with the production of beer. In this case, the emphasis will be on a process costing system. Process costing is used when a company carries out mass production of similar products, especially in a scenario where the costs of the output cannot be distinguished from each other. Therefore, the cost of the beer is assumed to be the same as the cost of every other product. The company adds up the total cost of production and then allocates it to the number of units produced.

Direct materials

To understand the accounting costs that are associated with the production of beer, it will be important to understand the raw materials and other costs that are incurred in the processing departments. The first department is the mashing department. The raw materials that are added to production in this department are ground barley malt, water, and milled rice (Rios-Mercado and Rios-Solis 208). The second department is straining.

There are no raw materials to be added to the production process within this department. The third is known as the brew kettle department. At this stage, hops are added to the production process. The next step is the cooling department and no materials are added at this stage. In the next department, primary fermentation, yeast is added; and beechwood chips are added in the next department, which is the beechwood gaining department. The next department is filtering. No raw material is added in the filtering department. However, a final quality control check is carried out at this point. The next stage is the filling and packaging department.

At this stage, the packaging materials such as bottles and labels are added. The final stage is the shipping department. At this stage, cartons are added to the production process and the final products are transported to various distribution centers. Therefore, this summary lists the raw materials that are used in the entire production process.

Direct labor and manufacturing overhead

A review of the video shows that large machines are used in the production process. This indicates that the production of beer is capital intensive. Also, there are a few employees who are designated at some location. Therefore, their salaries and wages will account for the direct labor costs. An assumption that will be made is that labor costs will be incurred at each stage of production in operating and maintaining the equipment for making beer.

Further, the manufacturing overhead will be the depreciation of the equipment, maintenance costs, and the cost of utilities. It is worth mentioning that the production process of beer occupies a large space that requires utilities such as lighting, heating, and insurance, among other costs. These are some examples of manufacturing overhead costs. The journal entries presented below show a summary of the flow of accounting information for the production of a six-pack of beer (Rios-Mercado and Rios-Solis 208).

Details	Debit	Credit
Raw materials Accounts payable To record the purchase of raw materials on credit	$10	$10
Work in progress mashing Wages Raw material Wages payable	10 1	10 1
Work in progress straining Wages Work in progress mashing Wages payable	11 1	11 1
Work in progress brewing Wages Work in progress straining Wages payable	14 1	14 1
Work in progress cooling Wages Work in progress brewing Wages payable	15 1	15 1
Work in progress fermentation Wages Work in progress cooling Wages payable	17 1	17 1
Work in progress beechwood Wages Work in progress fermentation Wages payable	20 1	20 1
Work in progress filtering Wages Work in progress beechwood Wages payable	21 1	21 1
Work in progress filling and packing Wages Work in progress filtering Wages payable	24 1	24 1
Overhead cost pool Account payable To record indirect production costs	5	5
Work in progress inventory Overhead cost pool	5	5
Finished goods inventory Work in progress filling and packing To record the completed product	$29	$29

The production process ends once the bottles of beer are packed in boxes. Therefore, finished goods are accounted for in the form of cartons. It is worth mentioning that companies that manufacture beer often produce a variety of brands.

Each brand of beer makes use of different ingredients. Besides, the various brands arise because of differences in the process production. Therefore, cost should be allocated with the differences in the production process in mind. This implies that some material and conversion costs are allocated to specific batches and not to the entire production process. Therefore, it is important to take into account the brand that is being manufactured in the entire production process. The accounting entries for the costs are similar to those of job order costing (Drury 279).

Cost flow

In the case of the process costing system, the flow of cost does not differ significantly as compared to the other costing systems. The direct materials are added at the start of the production. The other costs, such as labor and other overheads, are added during the production process. In this case, barley malt, water, and milled rice are added at the beginning of the production process. Furthermore, some materials are added at some stages of production. From an accounting point of view, the first step is to record the purchase of raw materials. When the production of beer begins, the items are moved from the raw materials account to work in progress.

Therefore, the raw materials are no longer available for use. The final goods are those that are ready for distribution or consumption. Therefore, the inventory is moved from work in progress to finished goods. Finally, when a sale is made, the revenue and associated cost is recognized. The company makes use of both the weighted average costing method and the first-in-first-out approach to value inventory. Accurate estimation of costs is important for accurate pricing and making important financial decisions (Bhimani, Horngren, Datar, and Forster 198).

Works Cited

Bhimani, Alnoor, Charles Horngren, Srikant Datar, and George Forster. Management and Cost Accounting, England: Pearson Education Limited, 2008. Print.

Drury, Colin. Management and Cost Accounting, Boston: Cengage Learning, 2008. Print.

Hirano, Hiroyuki. The Just-in-Time Production System, Florida: CRC Press, 2009. Print.

Rios-Mercado, Roger and Yasmin Rios-Solis. Just-in-Time Systems, New York: Springer, 2011. Print.

Vanderbeck, Edward, and Maria Mitchell. Principles of Cost Accounting, Boston: Cengage Learning, 2015. Print.

Weygandt, Jerry, Donald Kieso, and Paul Kimmel. Managerial Accounting: Tools for Business Decision Making, London: John Wiley & Sons Ltd, 2010. Print.

Click Here To Order Now!

Cost Accounting for Beer Production

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)