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26-2 Accounting for Manufacturing Activities Section 1: Accounting for Manufacturing Activities Chapter 26 Section Objectives 1.Prepare a statement of cost of goods manufactured. 2.Explain the basic components of manufacturing cost. 3.Prepare an income statement for a manufacturing business. 4.Prepare a balance sheet for a manufacturing business.

26-3 Manufacturing Businesses Merchandising businesses purchase goods to be resold in the same condition and form but at a profit. Manufacturing businesses purchase and convert raw materials into finished goods to be sold at a profit. Merchandising Businesses Comparison

26-4 The Cost of Goods Manufactured line item replaces the Purchases line item on the income statement Statement of Cost of Goods Manufactured

26-5 Manufacturing Costs Consist of Three Components Raw Materials Direct Labor Manufacturing Overhead

26-6 Raw Materials Raw materials consist of direct and indirect materials. Examples of direct materials are wood, glue, varnish, or hardware for a furniture maker. Indirect materials are used to work on the products, but do not become a part of the product.

26-7 Raw Materials and the Statement of Cost of Goods Manufactured 1. Compute total materials available 2.Compute raw materials used

26-8 Examples of Direct Labor Costs Salaries of workers who shape the lumber. Salaries of workers who assemble the pieces into trailers. Labor costs for workers who paint or finish the final products.

26-9 Indirect Labor Costs of personnel who support production but are not directly involved in manufacturing (supervisors, janitors, maintenance staff).

26-10 Manufacturing Overhead Manufacturing overhead includes all of the costs that are not classified as direct materials and direct labor. Manufacturing overhead may include the following: Indirect labor - Costs attributable to personnel who support the production process. Indirect supplies Utilities Depreciation Repair and maintenance Property taxes Insurance

26-11 Accounting for Work in Process on the Income Statement An estimate is made of the costs of raw materials, direct labor, and manufacturing overhead that apply to work in process at the end of the period

26-12 Income Statement for a Manufacturing Concern Figure taken from the cost of goods manufactured statement

26-13 The balance sheet for a manufacturing business contains three inventory categories Inventories Raw Materials24, Work in Process12, Finished Goods29, , Trailer Manufacturing Company Partial Balance Sheet December 31, 2013 Inventories and the Balance Sheet for a Manufacturing Business

26-14 Accounting for Manufacturing Activities Section 2: Completing the Accounting Cycle Chapter 26 Section Objectives 5.Prepare a worksheet for a manufacturing business. 6.Record the end-of-period adjusting entries for a manufacturing business. 7.Record closing entries for a manufacturing business. 8.Record reversing entries for a manufacturing business.

26-15 The steps in the accounting cycle do not change for a manufacturing business. The worksheet must be constructed to facilitate preparation of the cost of goods manufactured statement. The worksheet has two new columns: Cost of Goods Manufactured Debit column Cost of Goods Manufactured Credit column The Accounting Cycle for a Manufacturing Business

26-16 Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Direct Labor Various Manufacturing Overhead Accounts Manufacturing Summary The worksheet of a manufacturing business contains several new accounts:

26-17 Adjusting Inventory Accounts 6. DR Finished Goods Inventory CR Income Summary for ending inventory amount 4.DR Work in Process Inventory CR Manufacturing Summary for ending inventory amount 2.DR Raw Materials Inventory CR Manufacturing Summary for ending inventory amount 5. DR Income Summary CR Finished Goods Inventory for beginning inventory amount 3.DR Manufacturing Summary CR Work in Process Inventory for beginning inventory amount 1.DR Manufacturing Summary CR Raw Materials Inventory for beginning inventory amount Finished GoodsWork in ProcessRaw Materials

26-18 Inventory Uncollectible accounts Expired insurance Supplies on hand Depreciation Accrued salaries Payroll taxes on accrued payroll Income tax payable Adjusting Entries on the Worksheet

26-19 Preparing Financial Statements From the Worksheet Three sets of columns exist for the financial statements: Cost of Goods Manufactured Income Statement Balance Sheet