Manufacturing Accounting 2010 Prentice Hall Business Publishing College

Learning Objective 1 Preparing a cost of goods manufacturing schedule © 2010 Prentice Hall

Manufacturing Accounting Specialized accounting concepts and techniques required to record, report, and control the operations of a manufacturing company © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Costs Separate Manufacturing from Administrative Manufacturing Costs ◦ Raw materials ◦ Direct labor ◦ Overhead Administrative Costs ◦ Selling ◦ Administrative © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Manufacturing Costs Raw materials – material that is to be processed into a finished product Direct labor – wages of those person whose efforts directly affect the quality or other characteristics of the products manufactured © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Manufacturing Costs Overhead – all other manufacturing costs not included in raw material or direct labor ◦ ◦ ◦ ◦ Maintenance wages/supplies Production supervision & expenses Depreciation expense of manufacturing assets Rent expense for buildings/machinery Electricity for manufacturing Insurance expense for manufacturing Indirect labor Manufacturing clerical wages © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Manufacturing Inventories Raw materials inventory – cost of items of raw material being held for production + freight costs Work-in-process inventory – cost of products being processed Finished goods inventory – manufacturing cost of products that have been completed and are awaiting shipment to customers © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Cost of Goods Sold Different from a merchandise co. Purpose is to properly match manufacturing costs with sales • Must include beginning & ending finished goods • • Beginning Finished Goods Inventory + Cost of Goods Manufactured = Cost of Good Available for Sale - Ending Finished Goods Inventory = Cost of Goods Sold © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Cost of Goods Manufactured Raw materials used Direct labor Factory overhead © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater Finished Goods Inventory Work-in. Process inventory Cost of goods sold LO-1

Cost of Goods Manufactured Cost of Raw Materials Used: Beginning raw materials inventory + Purchases of Inventory - Ending raw material inventory © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Cost of Goods Manufactured Total manufacturing costs incurred: Cost of raw materials used + Direct labor + Factory Overhead © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Cost of Goods Manufactured Cost of goods manufactured: Total manufacturing costs + Beginning work-in-process inventory - Ending work-in-process inventory © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Problem 25 B-1 Total manufacturing costs Work-in-process Inventory, 7 -31 Total Cost of Goods Manufactured © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Learning Objective 2 Journalizing transactions recording the manufacturing process © 2010 Prentice Hall Business

Source Documents Required data are submitted to cost accountants. Timely receipt of legible documents is often a problem. Employees must be aware of importance. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Source Documents Receiving reports - prepared by receiving department; acknowledges receipt of materials & supplies from vendors Material requisitions - documents initiated by manufacturing personnel or other users to request material from inventory warehouse Clock card - card used by each hourly employee, collected each week by payroll department © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Source Documents Lot tickets - (move tickets) documents written by dept. mgrs. to reflect movement of products or parts of products from one dept. to another Labor distribution report – by-product of payroll allocated to direct & maintenance labor, etc… Bills of lading - documents that show shipment of products to consumers © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Flow of Manufacturing Costs Raw Materials Applied Indirect Factory Overhead Labor © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater Direct Work-in. Process Finished Goods Cost of Goods Sold

Learning Objective 3 Preparing a worksheet for a manufacturing company LO-3 © 2010 Prentice

Worksheet for Manufacturing Company New set of columns for statement of cost of goods manufactured ◦ Beginning balances of raw materials and work-in-process are listed in debit column ◦ Ending balance are entered in credit column ◦ Manufacturing expenses in debit column LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Worksheet for Manufacturing Company Income Statement columns ◦ Beginning balance of finished goods in debit column ◦ Ending balance in credit column ◦ Revenues are credited and expenses are debited LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Worksheet for Manufacturing Company Balance Sheet columns ◦ Is done similar to a traditional balance sheet ◦ Assets is debited and liabilities and owner’s equity are credited LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater