Chapter 9 * Manufacturing Process

Report
Chapter 9 – Manufacturing Process
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What are the Primary Activities in the Conversion Process?
Schedule production
Obtain raw materials (internal transfer)
Use labor and manufacturing resources to convert raw materials int
finished goods
• Store finished goods until sold (internal transfer)
S&A Exp
Purchases
Work
In
Process
Raw
Materials
Direct Labor
Applied
Manufacturing
Overhead
Finished
Goods
Cost of
Goods
Sold
Man Overhead
Under / Overapplied
Selling &
Admin Costs
Chapter 9 – Manufacturing Process
• Which of the Conversion Process Activities are Accounting Events?
• Obtain raw materials
– Increase work-in-process inventory
– Decrease direct materials inventory
• Use labor and overhead
– Increase work-in-process inventory
• Store finished goods
– Increase finished goods inventory
– Decrease work-in-process inventory
S&A Exp
Purchases
Work
In
Process
Raw
Materials
Direct Labor
Applied
Manufacturing
Overhead
Finished
Goods
Cost of
Goods
Sold
Man Overhead
Under / Overapplied
Selling &
Admin Costs
Chapter 9 – Manufacturing Process
• What is the basic flow of information in the conversion
process?
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A customer places an order and production is scheduled.
Direct materials are requisitioned and recorded.
Labor is used and recorded
A cost record is prepared and goods are manufactured.
Goods are finished and recorded.
S&A Exp
Purchases
Work
In
Process
Raw
Materials
Direct Labor
Applied
Manufacturing
Overhead
Finished
Goods
Cost of
Goods
Sold
Man Overhead
Under / Overapplied
Selling &
Admin Costs
Chapter 9 – Manufacturing Process
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What is the purpose of the inventory accounts in a manufacturing company
and what types of activities cause the accounts to increase and decrease?
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Direct materials inventory—the cost of direct materials on hand; increases
when direct materials are purchased; decreases when direct materials are
issued into production
Work-in-process inventory—the cost of products started, but not completed;
increases when direct materials and direct labor are used in production and
when manufacturing overhead is assigned to production; decreases when
goods are finished and transferred out (cost of goods manufactured)
Finished goods inventory—the cost of products finished, but not sold; increases
when goods are finished and transferred in; decreases when goods are sold
(cost of goods sold)
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•
S&A Exp
Purchases
Work
In
Process
Raw
Materials
Direct Labor
Applied
Manufacturing
Overhead
Finished
Goods
Cost of
Goods
Sold
Man Overhead
Under / Overapplied
Selling &
Admin Costs
Chapter 9 – Manufacturing Process
• Definitions
– Direct (Raw) Materials Cost
• Physically traceable items / costs to the final product
– Direct Labor Cost
• Costs of employees who actually manufacture the product
– Manufacturing Overhead Costs (Applied)
• Represents indirect (materials and labor) manufacturing costs
– Manufacturing Overhead Costs (Actual)
• The real amount MOH costs us (prob not going to = applied amt)
• Need to adjust in our COGS for accuracy
– Selling & Administrative Costs
• Represents other costs related to selling the item
S&A Exp
Purchases
Work
In
Process
Raw
Materials
Direct Labor
Applied
Manufacturing
Overhead
Finished
Goods
Cost of
Goods
Sold
Man Overhead
Under / Overapplied
Selling &
Admin Costs
Chapter 9 – Manufacturing Process
• Calculations
Beginning
+ Purchases of R.M.
= Cost of R.M. avail for use
- R.M. Issued into production
= Ending R.M. Inventory
I’m headed
to WIP!!
Raw
Mat
Chapter 9 – Manufacturing Process
I’m headed
to Finished
Goods!!
• Calculations
WIP
+ Direct Mat Issued
+Direct Labor Used
+ Applied Manu O.H.
= Cost of goods in Process
-Cost of goods manufactured
=Ending WIP Inventory
Chapter 9 – Manufacturing Process
• Calculations
+Cost of Goods Manufactured
=Cost of Goods Avail for Sale
-Cost of Goods Sold (COGS)
=Ending Fin Goods Inv
I’m headed
to COGS!!
Finished
Goods
Chapter 9 – Manufacturing Process
• Calculations
Beginning COGS
+ Cost of Finished Goods Sold
+ / - Man OH Under / Over Applied
=Total COGS For The Period
COGS
Begin
Chapter 9 – Overhead Application
• Overhead… Isn’t it a cost to the manufacturing (WIP)?
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Yes!!! So, how do we “get it into” WIP?
Overhead occurs differently than DM and DL!
DM / DL happen regularly… easy to match with WIP
MOH happens sporadically
• Tough to match directly (that’s why it’s “indirect”) to WIP
• Must “Apply” it to WIP to match it up
• How do we Apply it?
– A “guess-timation” of the MOH costs
– What if we “Apply it” wrong? (which we will, not going to be dead on!)
– Have to adjust our COGS
» Overapplied (too much) needs to decrease COGS
» Underapplied (not enough) needs to increase COGS
• So… what do we do???
– How do we Journalize it?
Chapter 9 – Manufacturing Process
• Definitions
– Direct Materials Cost
• Physically traceable items / costs to the final product
– Direct Labor Cost
• Costs of employees who actually manufacture the product
– Manufacturing Overhead Costs
• Represents indirect (materials and labor) manufacturing costs
– Selling & Administrative Costs
• Represents other costs related to selling the item

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