1. MANUFACTURING COSTS STATEMENT
TOPIC 6
MANUFACTURING COSTS STATEMENT
Ahmad Kaseri Ramin
FPTPK UTHM 2012

2. Topic learning outcomes:
At the end of the session students are able to:
Identify components of manufacturing costs statement
Trace manufacturing cost flow in the production operation environment
Construct manufacturing cost statement

3. Manufacturing Cost
Direct materials
Direct labor
Factory overhead

4. Manufacturer Production Costs
Manufacturing costs are often combined as follows:
Direct Material
Direct Labor
Manufacturing Overhead
Direct labor and direct material are called the prime costs of manufacturing. Direct labor and manufacturing overhead are called conversion costs.
Prime Cost
Conversion Cost

5. Manufacturing Overhead
Manufacturing Cost
Direct
Materials
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Manufacturing Overhead

6. Flow of Manufacturing Activities
Exh.
18-15
Conversion activity
Sales activity
Materials activity
Finished Goods Beginning Inventory
Goods in Process Beginning Inventory
Raw Materials
Beginning Inventory
Direct Labor
Cost of Goods Manufactured
Raw Materials Purchases
Factory Overhead
Finished Goods Ending Inventory
Cost of Goods Sold
Starting on the left side of this flow chart, we see that material purchases are combined with the materials beginning inventory. Materials are then either used or they remain in inventory. In the center portion of the flow chart, we see the materials being used are combined with labor, overhead, and the goods in process beginning balance. As goods are finished, they are transferred out of the goods in process inventory account into the finished goods inventory account. The cost of the goods finished in the period is called cost of goods manufactured. Finished goods are either sold, called cost of goods sold, or they remain in the finished goods inventory account.
Raw Materials Used
Raw Materials Ending Inventory
Goods in Process Ending Inventory

7. Material Activities in manufacturing Company
Beginning direct material inventory XXX
Purchases XXX
Direct materials available for use XXX
Ending inventory XXX
Direct materials used XXX

8. The Flow of Product Costs –Manufacturing Company
Raw materials
purchases
Work-in-process
inventory
● Direct materials
Direct materials cost
Raw materials
inventory
Manufacturing
overhead cost
● Indirect materials
Ending
raw materials
inventory
Balance sheet

9. The Flow of Product Costs –Manufacturing Company
Direct materials cost
Work-in-process
inventory
● Direct materials
● Direct labor
● Manufacturing overhead
Direct labor cost
Manufacturing overhead cost
● Indirect materials
● Indirect labor
● Factory rent
● Depreciation
● Factory taxes
● Factory insurance
● Other factory costs

10. The Flow of Product Costs –Manufacturing Company
Work-in-process
inventory
● Direct materials
● Direct labor
● Manufacturing overhead
Ending
work-in-process
inventory
Finished goods
inventory
Balance sheet

11. The Flow of Product Costs –Manufacturing Company
Finished goods
inventory
Ending
finished
goods
inventory
Cost of
goods
sold
Balance sheet
Income statement

12. Manufacturing Statement
Summarizes the types and amounts of costs
Incurred in a company’s manufacturing process.
Direct Materials Used
+ Direct Labor
+ Factory Overhead
= Total Manufacturing Costs
+ Beginning Work in Process
– Ending Work in Process
= Cost of Goods Manufactured
The production activities in the center portion of the preceding flow chart can be summarized in a manufacturing statement. The three product costs are totaled and added to the beginning balance of the goods in process inventory account. Subtracting the ending balance of the goods in process account from this total results in the cost of goods manufactured for the period.

13. Financial Statements for Manufacturing Companies
INCOME STATEMENT
BALANCE SHEET
when
sales
occur
Sales Revenue
Materials
Inventory
deduct
Finished
Goods
Inventory
Cost of
Goods Sold
= Gross Margin
deduct
Work in
Process
Inventory
Operating
Expenses
= Operating Income

14. Flow of Costs through a Manufacturer’s Accounts
Direct Materials Inventory
Beginning inventory
Purchases and freight-in
Direct materials available for use
Ending inventory
Direct materials used
Work in Process Inventory
Beginning inventory
Direct materials used
Direct labor
Manufacturing overhead
Total manufacturing costs
to account for
Ending inventory
Cost of goods manufactured

15. Flow of Costs through a Manufacturer’s Accounts
Finished Goods Inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale
Ending inventory
Cost of goods sold

16. Manufacturing Statement
Exh.
18-16
Here you see the manufacturing statement for Mountain Bikes Ent. in a highly summarized form. We will build each of the major parts of the statement starting with materials.

17. Exh.
18-16
Material purchases for the current year are added to the beginning balance of materials inventory. The beginning balance of materials inventory for the current year is the ending balance of materials inventory from last year. Materials are either used or they remain in inventory. Subtracting the amount of materials on hand in inventory at the end of the year results in the cost of materials used for the current year.

18. Manufacturing Statement
Include all direct labor costs incurred during the current period.
Exh.
18-16
Direct labor costs are the wages of direct labor employees who actually convert materials into a finished bike.

19. Manufacturing Statement
Exh.
18-16
Factory overhead costs are indirect manufacturing costs that support the manufacturing activities. The eight factory overhead items in this example, totaling thirty thousand dollars, are commonly encountered in many manufacturing companies.

20. Manufacturing Statement
Exh.
18-16
Beginning work in process inventory is carried over from the prior period.
Total manufacturing costs for the current period are added to the beginning balance of goods in process. The beginning balance of goods in process for the current year is the ending balance of goods in process from last year.

21. Manufacturing Cost Statement
Exh.
18-16
Ending work in process inventory contains the cost of unfinished goods, and is reported in the current assets section of the balance sheet.
Subtracting the ending balance of the goods in process account from the total cost of goods in process results in the cost of goods manufactured for the current year. Cost of goods manufactured is cost of goods completed and transferred to finished goods for the current year.

22. END of TOPIC 6