Alex Socratis - Accounting Department Manufacturing Accounting

Alex Socratis - Accounting Department

Manufacturing Accounting

Learning Objective 1

Preparing a cost of goods manufacturing schedule


Manufacturing Accounting

Specialized accounting concepts and techniques required to record, report, and control the operations of a manufacturing company


Costs

Separate Manufacturing from Administrative

Manufacturing Costs ◦Raw materials◦Direct labor◦Overhead

Administrative Costs◦Selling◦Administrative


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


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


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


LO-1

Cost of Goods Sold

Beginning Finished Goods Inventory

+ Cost of Goods Manufactured= Cost of Good Available for Sale- Ending Finished Goods

Inventory= Cost of Goods Sold


LO-1

• Different from a merchandise co.• Purpose is to properly match

manufacturing costs with sales• Must include beginning & ending finished

goods

Raw materialsused

Factoryoverhead

Directlabor

Cost ofgoods sold

Cost of Goods Manufactured

Work-in-Processinventory

FinishedGoods

Inventory


LO-1


Cost of Raw Materials Used:

Beginning raw materials inventory+ Purchases of Inventory- Ending raw material inventory


LO-1


Total manufacturing costs incurred:

Cost of raw materials used+ Direct labor+ Factory Overhead


LO-1


Cost of goods manufactured:

Total manufacturing costs+ Beginning work-in-process inventory- Ending work-in-process inventory


LO-1

Problem 25B-1


LO-1

Total manufacturing costsWork-in-process Inventory, 7-31Work-in-process Inventory, 7-31Total Cost of Goods Manufactured


Journalizing transactions recording the manufacturing process


LO-2

Source Documents

Required data are submitted to cost accountants.

Timely receipt of legible documents is often a problem.

Employees must be aware of importance.


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


LO-2

Source DocumentsLot 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 consumersAlex Socratis - Accounting Department

LO-2

Flow of Manufacturing Costs


Cost of GoodsSold

Labor

RawMaterials

Ind

irec

t

FinishedGoods

FactoryOverhead

Direct

Applied Work-in- Process

Overhead Application

Two accounts◦Overhead – Control: debit to

accumulate all actual overhead costs◦Overhead – Applied: credit to

apply overhead to production


LO-2

Overhead Application Rate

Annual overhead / Annual activity base

$250,000/$750,000 = 33%Activity base examples

◦Direct labor hours◦Direct labor costs◦Machine hours


LO-2


Overhead based on direct labor hours:Annual overhead / Annual direct

labor hours

$250,000 / 150,000 hours = $1.67/hr

Direct labor hours for month = 1,500 hrs1,500 x $1.67 = $2,505


LO-2


Overhead based on machine hours:Annual overhead / Annual machine

hours

$250,000 / 60,000 machine hours = $4.17/hr

Machine ran 2,000 hours$4.17 x 2,000 = $8,333.33


LO-2

Problem 25B-2


Work-in-Process

70,00075,000

LO-2

Problem 25B-2


Work-in-Process

70,00075,00060,000

LO-2

Problem 25B-2


Work-in-Process

70,00075,00060,000

180,000

Bal. 25,000

LO-2


Preparing a worksheet for a manufacturing company


LO-3

Worksheet for Manufacturing CompanyNew 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

Worksheet for Manufacturing CompanyIncome Statement columns

◦Beginning balance of finished goods in debit column

◦Ending balance in credit column◦Revenues are credited and expenses

are debited


LO-3

Worksheet for Manufacturing CompanyBalance Sheet columns

◦Is done similar to a traditional balance sheet

◦Assets is debited and liabilities and owner’s equity are credited


LO-3

Reports Prepared from the WorksheetStatement of Cost of Goods

Manufactured-


LO-3

Reports Prepared from the WorksheetIncome Statement


Net Sales: 398,000$ Cost of Goods Sold

Finished Goods Inventory (Beg.) 40,000$ Cost of Goods Manufactured 267,000Cost of Goods Available for Sale 307,000$ Less: Finished Goods Inventory (End.) 28,000

Cost of Goods Sold: 279,000$ Gross Profit on Sales 119,000$

Operating Expenses:Selling Expense 15,450$ Admistrative Expense 9,560

Total Operating Expenses 25,010$ Net Income (before taxes) 93,990$

Samolis ManufacturingIncome Statement

For Month Ended March 31, 20XX

LO-3

Reports Prepared from the WorksheetBalance Sheet


ASSETSCurrent Assets

Cash 350,000$ Accounts Receivable 245,000$ Less: Allowance for Doubtful Accounts 130,000 115,000$

InventoriesRaw Materials 96,000$ Work-in-Process 18,000Finished Goods 28,000 142,000$

Prepaid ExpensesFactory Supplies 2,500Prepaid Factory Insurance 3,000 5,500$ Total Current Assets 612,500$

Plant and Equipment:Factory Machinery 78,000$ Less: Accum. Deprec., Factory Machinery 19,500 58,500$

Total Assets 671,000$

SAMOLIS MANUFACTURINGBALANCE SHEETMARCH 31, 20XX

Liabilities and Stockholders' EquityCurrent Liabilities

Notes Payable 145,000$ Accrued Payroll Payable 21,000 166,000$

Stockholder's EquityCommon Stock, $100 par 2,000 shares 200,000$ Retained Earnings 305,000 505,000$

Total Liab. & Stockholders' Equity 671,000$

SAMOLIS MANUFACTURINGBALANCE SHEETMARCH 31, 20XX

LO-3


End of Chapter