1. Recording and Evaluating Conversion Process Activities
Chapter 9
Recording and Evaluating Conversion Process Activities

2. 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)

3. 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
Store finished goods
Increase finished goods inventory
Decrease work-in-process inventory

4. What is the Basic Flow of Information in the Conversion Process?
Customer places an order and production is scheduled
Raw materials are requisitioned and recorded
Labor is used and recorded
Cost record prepared and goods are manufactured
Goods are finished and recorded

5. What are the Manufacturing Inventory Accounts?
Direct materials inventory
Current asset (similar to Merchandise Inventory for a merchandising company): Cost of direct materials on hand
Increases when purchases of direct materials are made (Chapter 8)
Decreases when direct materials are requisitioned into production

6. Inventories Continued
Work-in-process inventory
Current asset: Cost of products that have been started but not completed
Increases when direct materials are requisitioned into production
Increases when direct labor is used in production
Increases when manufacturing overhead is applied to production
Decreases when products are finished

7. Inventories Continued
Finished goods inventory
Current asset: Cost of products that have been finished but not sold
Increases when products are finished
Decreases when products are sold (Chapter 10)

8. How do Costs Flow through the Inventory Accounts?
Beginning direct materials inventory
+ Purchases of direct materials
= Cost of direct materials available for use
Direct materials issued into production
= Ending direct materials inventory

9. Cost Flows Continued Beginning work-in-process inventory
+ Direct materials issued into production
+ Direct labor used in production
+ Applied manufacturing overhead
= Cost of goods in process
Cost of goods manufactured
= Ending work-in-process inventory

10. Cost Flows Continued Beginning finished goods inventory
+ Cost of goods manufactured
= Cost of goods available for sale
Cost of goods sold
= Ending finished goods inventory

11. How does the Manufacturing Overhead Application Process Work?
Beginning of period
Estimate overhead for each cost pool
Unit-related
Batch-related
Product-sustaining
Facility-sustaining
Estimate cost drivers for each cost pool
Divide estimated overhead by estimated cost driver = predetermined overhead rate

12. Overhead Application Continued
During period
Apply overhead to production as the cost driver is used
Record actual overhead as incurred
End of period
Compare total applied overhead to total actual overhead
Close the overhead account to Cost of Goods Sold (difference between applied and actual)