What are the Primary Activities in the Conversion Process? Schedule production Obtain raw materials (internal transfer) Use labor and manufacturing resources.

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Presentation transcript:

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 goods Store finished goods until sold (internal transfer) Chapter 9 – Manufacturing Process Raw Materials Work In Process Finished Goods Cost of Goods Sold Direct Labor Applied Manufacturing Overhead Purchases Man Overhead Under / Over- applied Selling & Admin Costs S&A Exp

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 Chapter 9 – Manufacturing Process Raw Materials Work In Process Finished Goods Cost of Goods Sold Direct Labor Applied Manufacturing Overhead Purchases Man Overhead Under / Over- applied Selling & Admin Costs S&A Exp

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 recorded A cost record is prepared and goods are manufactured. Goods are finished and recorded. Chapter 9 – Manufacturing Process Raw Materials Work In Process Finished Goods Cost of Goods Sold Direct Labor Applied Manufacturing Overhead Purchases Man Overhead Under / Over- applied Selling & Admin Costs S&A Exp

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 inventorythe cost of direct materials on hand; increases when direct materials are purchased; decreases when direct materials are issued into production Work-in-process inventorythe 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 inventorythe 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 Goods Sold Direct Labor Applied Manufacturing Overhead Purchases Man Overhead Under / Over- applied Selling & Admin Costs S&A Exp

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 Chapter 9 – Manufacturing Process Raw Materials Work In Process Finished Goods Cost of Goods Sold Direct Labor Applied Manufacturing Overhead Purchases Man Overhead Under / Over- applied Selling & Admin Costs S&A Exp

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 Im headed to WIP!!

Chapter 9 – Manufacturing Process WIP Im headed to Finished Goods!!

Chapter 9 – Manufacturing Process Finished Goods Im headed to COGS!!

Calculations Beginning COGS + Cost of Finished Goods Sold + / - Man OH Under / Over Applied =Total COGS For The Period Chapter 9 – Manufacturing Process COGS Begin

Overhead… Isnt 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 WIP – MOH happens sporadically Tough to match directly (thats why its 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 – Overhead Application

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