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

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 26-3

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

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

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. 26-6

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

Direct labor costs are costs of the personnel who work directly on the product being manufactured. ANSWER: QUESTION: What are direct labor costs? 26-8

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

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 26-10

Work in Process Products in the production process, but not yet completed. Accounted for in the cost of goods manufactured section of the income statement

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

Prepare a balance sheet for a manufacturing business. Objective

The balance sheet for a manufacturing business contains three inventory categories. Inventories Raw Materials24, Work in Process12, Finished Goods29, , The Manufacturing Company Partial Balance Sheet December 31, 2016 Inventories and the Balance Sheet for a Manufacturing Business 26-15

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

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

The Manufacturing Summary account is the account to which all items on the statement of cost of goods manufactured are closed. ANSWER: QUESTION: What is the Manufacturing Summary account? It is similar to the Income Summary account

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 26-19

Inventory Uncollectible accounts Expired insurance Supplies on hand Depreciation Accrued salaries Payroll taxes on accrued payroll Income tax payable Adjusting Entries on the Worksheet 26-20

Preparing Financial Statements From the Worksheet Three sets of columns exist for the financial statements: Cost of Goods Manufactured Income Statement Balance Sheet 26-21

Record the end-of-period adjusting entries for a manufacturing business. Objective

Closing Entries 1.Close accounts to Manufacturing Summary. 2.Close revenue and expense accounts to Income Summary. 3.Close Manufacturing Summary to Income Summary. 4.Close Income Summary to Retained Earnings

Thank You for using College Accounting, 14th Edition Price Haddock Farina 26-24