Schedule production Obtain raw materials internal transfer Use labor and manufacturing resources to convert raw materials into finished goods Store finished goods until sold internal transfer ID: 137807
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Slide1
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 into finished goodsStore finished goods until sold (internal transfer)
Chapter 9 – Manufacturing Process
Raw
Materials
Work
In
Process
Finished
Goods
Cost ofGoodsSold
Direct Labor
Applied Manufacturing
Overhead
Purchases
Man Overhead
Under
/
Over
-applied
Selling &
Admin Costs
S&A ExpSlide2
Which of the Conversion Process Activities are Accounting Events?
Obtain raw materials
Increase work-in-process inventoryDecrease direct materials inventoryUse labor and overheadIncrease work-in-process inventory
Store finished goodsIncrease finished goods inventoryDecrease work-in-process inventory
Chapter 9 – Manufacturing Process
Raw
Materials
Work
In
Process
Finished
Goods
Cost ofGoodsSold
Direct Labor
Applied Manufacturing
Overhead
Purchases
Man Overhead
Under
/
Over
-applied
Selling &
Admin Costs
S&A ExpSlide3
What is the basic flow of information in the conversion process?
A customer places an order and production is scheduled.
Direct materials are requisitioned and recorded.Labor is used and recordedA cost record is prepared and goods are manufactured.
Goods are finished and recorded.
Chapter 9 – Manufacturing Process
Raw
Materials
Work
In
Process
Finished
GoodsCost of
GoodsSold
Direct Labor
Applied Manufacturing
Overhead
Purchases
Man Overhead
Under
/
Over
-applied
Selling &
Admin Costs
S&A ExpSlide4
What is the purpose of the inventory accounts in a manufacturing company and what types of activities cause the accounts to increase and decrease?
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)
Chapter 9 – Manufacturing Process
Raw
Materials
Work
In
Process
Finished
Goods
Cost of
GoodsSold
Direct Labor
Applied Manufacturing
Overhead
Purchases
Man Overhead
Under
/
Over
-applied
Selling &
Admin Costs
S&A ExpSlide5
Definitions
Direct (Raw) Materials Cost
Physically traceable items / costs to the final product
Direct Labor CostCosts of employees who actually manufacture the productManufacturing 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 accuracySelling & Administrative CostsRepresents other costs related to selling the item
Chapter 9 – Manufacturing Process
Raw
Materials
Work
In
Process
Finished
GoodsCost ofGoods
Sold
Direct Labor
Applied Manufacturing
Overhead
Purchases
Man Overhead
Under
/
Over
-applied
Selling &
Admin Costs
S&A ExpSlide6
Calculations
Beginning
+ Purchases of R.M.
= Cost of R.M. avail for use
- R.M. Issued into production= Ending R.M. Inventory
Chapter 9 – Manufacturing Process
Raw Mat
Begin
I’m headed to WIP!!Slide7
Calculations
Beginning
+ 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
WIP
Begin
I’m headed to Finished Goods!!Slide8
Calculations
Beginning Fin Goods Inv
+Cost of Goods Manufactured
=Cost of Goods Avail for Sale-Cost of Goods Sold (COGS)=Ending Fin Goods Inv
Chapter 9 – Manufacturing Process
Finished Goods
Begin
I’m headed to COGS!!Slide9
Calculations
Beginning COGS
+ Cost of Finished Goods Sold
+ / - Man OH Under / Over Applied=Total COGS For The Period
Chapter 9 – Manufacturing Process
COGS
BeginSlide10
Overhead… Isn’t it a cost to the manufacturing (WIP)?
Yes!!! So, how do we “get it into” WIP?
Overhead occurs differently than DM and DL!
DM / DL happen regularly… easy to match with WIPMOH happens sporadicallyTough to match directly (that’s why it’s “indirect”) to WIPMust “Apply” it to WIP to match it up
How do we Apply it?A “guess-
timation” of the MOH costsWhat 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 COGSUnderapplied (not enough) needs to increase COGS
So… what do we do???How do we Journalize it?
Chapter 9 – Overhead ApplicationSlide11
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