1. Conversion Process Master It
When I started teaching this in 2006, one of the biggest challenges as I left my training, do I know this well enough to teach and can I make this interesting. During my MBA program I just finished Managerial Accounting and boy was it a snoozer to me. Six hours every Saturday morning!

2. Conversion Activities (Module 2 Recap)
Schedule production
Obtain raw materials
Use labor and other manufacturing resources to make products
Store finished goods until sold
Here are the parts of the conversion process. Bring them to life the best you can for students. Very foreign topic to them.

3. Schedule Production
Scheduling the use of machines and the arrival of materials is an important part of controlling and reducing costs.
Not a simple problem!

4. Please take a look at this slide closely, does this look like a simple process to you?

5. Schedule Production
A company with 800 production workers, each get paid $18 an hour, will lose $14,400 in labor costs alone for every hour that it has to stop production due to shortages of raw material.

6. The March 2011 Great Tohoku Earthquake and Tsunami
Population centers closed due to leaking radiation
Highways and railways closed
Electricity shortages
Ports were closed

7. The March 2011 Great Tohoku Earthquake and Tsunami
Motor Vehicle has over 15,000 parts
Lack of an essential component may halt the completion of vehicles or slowdown
Japan is the 2nd largest vehicle producing nation behind China
(Source: Congressional Research Service)

8. Schedule Production
Machine Setups are adjustments made to machines to get them ready to manufacture the next type of product.

9. Fully flexible factories Common global components
Schedule Production
Fully flexible factories
Common global components
Standardized assembly procedures
Collaborative supplier relationships
GM and Ford took 24 hours to make one car, Honda and Toyota were at 19, GM and Ford had one plant per vehicle, Honda and Toyota had fully flexible factories.

10. GM and Ford took 24 hours to make one car, Honda and Toyota were at 19, GM and Ford had one plant per vehicle, Honda and Toyota had fully flexible factories.
Oldsmobile Delta 88: 1988 bought with 92,000 miles, stolen at 163,000 miles

11. Production Floor Layout (Cell Locations)
I am coming to your house, you are to put the following items out for the meal. You are going to put it on this hutch, what order will you put them in?
Mathematical Models Used for Production Runs

12. Production Floor Layout (Cell Locations)
I am coming to your house, you are to put the following items out for the meal. You are going to put it on this hutch, what order will you put them in?
Mathematical Models Used for Production Runs

13. Obtain Direct Materials
Direct Materials and other supplies used in the production process are acquired and stored.

14. Obtain Direct Materials

15. Use Labor and Other Manufacturing Resources to Make Products
Direct Labor
Direct Materials
Manufacturing Overhead
Rent on manufacturing facilities
Insurance on the direct materials inventory
Heat, light, and power used
Engineering costs of designing products and scheduling the production process
70% or more of the costs of total production
Indirect materials
Indirect labor

16. Store Finished Goods Until Sold
When manufacturing is complete, finished products move from the production floor to storage until a shipping order is received.

17. Chapter 3 Completed
Understanding the conversion process

18. Chapter 9 Recording and Evaluating Conversion Process Activities
Navs Corporate Tower
The CEO
The Associates
Chapter 9 Recording and Evaluating Conversion Process Activities
Sales
-COGS
Gross Margin
-S & A Expenses
INCOME STATEMENT
Navs Manufacturing Facility

19. Chapter 9 Recording and Evaluating Conversion Process Activities
BALANCE SHEET
Inventory
Navs Manufacturing Facility

20. Finished Goods Warehouse
Inventory Focus
Manufacturing
Floor
Materials
Warehouse
Finished Goods Warehouse
There are three inventory accounts in the general ledger which reflects different aspects of the manufacturing process (control accounts).

21. Use Labor and Other Manufacturing Resources to Make Products
Direct Materials get recorded in the Direct Materials Inventory Account
Materials
Warehouse
Indirect Materials get recorded in the Supplies Account

22. Inventory Focus
Manufacturing
Floor
When direct materials get requisitioned into the manufacturing process they move into Work-In-Process Inventory Account.

23. Finished Goods Warehouse
Inventory Focus
When Work-In-Process Inventory gets completed and stored in the finished goods warehouse it get recorded in Finished Goods Inventory.
Finished Goods Warehouse

24. Work-In-Process Inventory Finished Goods Inventory
Inventory Focus
Manufacturing
Floor
Materials
Warehouse
Finished Goods Warehouse
Direct
Materials
Inventory
Work-In-Process Inventory
Finished Goods Inventory

25. Inventory Focus Navs Manufacturing Facility
Purchased $5,000 of direct materials on account
Direct Materials Inventory $5,000
Accounts Payable $5,000
2) Requisitioned $2,000 of direct materials into production.
Work-In-Process Inventory $2,000
Direct Materials Inventory $2,000
Completed jobs costing $1,500
Finished Goods $1,500
Work-In-Process Inventory $1,500

26. Navs Manufacturing Facility
Direct Labor Focus
Direct Labor is the cost of employees who actually work on the product.
Manufacturing
Floor
Direct Labor costs are recorded to work-in-process

27. Indirect Labor Focus
Indirect labor is the cost of employees who support manufacturing operations.

28. Manufacturing Overhead
Manufacturing Overhead is a temporary account used to reflect the indirect manufacturing costs of the period.
Rent on manufacturing facilities
Insurance on the direct materials inventory
Heat, light, and power used
Engineering costs of designing products and scheduling the production process
70% or more of the costs of total production
Indirect materials
Indirect labor

29. Manufacturing Overhead
Actual
Applied
The amount of overhead incurred during the accounting cycle.
The amount of overhead allocated to the work-in-process during the accounting cycle.

30. Manufacturing Overhead
When we apply MOH, we apply it to Work-In-Process Inventory.
Use a predetermined rate to apply it to WIP using Activity Based Costing.

31. Selling Inventory
This is why we are in business!
COGS FG
A/R
Sales

32. Entries, Entries, Entries
DMI
Supplies AP
Purchase direct and indirect materials on account
Direct materials were issued into production
Indirect materials were issued into production
Applied overhead to production
Paid the electricity bill
Paid the direct labor
Paid the indirect labor
Completed jobs
Sold inventory
2. WIP
DMI
3. MOH
Supplies
4. WIP
MOH
5. MOH
Cash
6. WIP
Cash
7. MOH
Cash
8. FG
WIP
9. COGS FG

33. Problem One: Classifying Costs
Navs Corporation makes pool tables. Each table consists of wood, felt, glue, screws, and metal.

34. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
1. Cost of wood.

35. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
2. Cost of Cost of shipping crates.

36. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
3. Cost of glue.

37. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
4. Depreciation on the factory equipment.

38. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
5. Office workers’ salaries.

39. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
6. Production supervisors’ salaries.

40. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
7. Rent on finished goods warehouse.

41. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
8. Rent on production facilities.

42. Classifying Costs Direct materials cost Direct labor cost
Manufacturing overhead cost
Selling and administrative cost
9. Wages of assembly workers.

43. Problem 2: Calculating Overhead
Navs Corporation applies unit-related manufacturing overhead on the basis of machine hours. The following unit-related overhead data were accumulated by the accounting department:
Estimated Actual
Machine hours 500, ,000
Overhead costs $1,500,000 $1,300,000

44. Problem 2: Calculating Overhead
Estimated Actual
Machine hours 500, ,000
Overhead costs $1,500,000 $1,300,000
What is the predetermined rate?
Estimated rate is always the estimate/estimate
Always dollars divided by activity
$1,500,000/500,000 = $3 per hour

45. Problem 2: Calculating Overhead
Estimated Actual
Machine hours 500, ,000
Overhead costs $1,500,000 $1,300,000
2. Journalize the applied manufacturing overhead.
$3 x 400,000 = $1,200,000
WIP 1,200,000
MOH 1,200,000

46. Problem 2: Calculating Overhead
Estimated Actual
Machine hours 500, ,000
Overhead costs $1,500,000 $1,300,000
3. Was overhead over-or underapplied?
Underapplied, $1,200,000 is less than $1,300,000

47. Problem 2: Calculating Overhead
Estimated Actual
Machine hours 500, ,000
Overhead costs $1,500,000 $1,300,000
4. What is the amount of over- or underapplied overhead?
Underapplied $1,200,000 is less than $1,300,000, the amount is $100,000

48. Problem 2: Calculating Overhead
Manufacturing Overhead
1,300,000
1,200,000
5. Close out MOH
COGS 100,000
MOH 100,000

49. Problem 3: Conversion Entries
1. Direct material inventory 55,000
Supplies 45,000
Accounts payable ,000
Answer: Purchased $55,000 of direct materials and $45,000 of indirect materials (supplies), both on account.

50. Problem 3: Conversion Entries
2. Work-in-process inventory 60,000
Direct materials inventory ,000
Answer: Direct Materials of $60,000 were issued into production.

51. Problem 3: Conversion Entries
3. Manufacturing overhead 45,000
Manufacturing supplies ,000
Answer: Indirect materials of $45,000 were issued into production.

52. Problem 3: Conversion Entries
4. Work-in-process inventory 17,000
Manufacturing overhead 14,000
Cash ,000
Answer: Paid $31,000 in wages to employees: $17,000 was direct labor and $14,000 was indirect labor.

53. Problem 3: Conversion Entries
5. Manufacturing overhead ,000
Cash ,000
Answer: Paid the electricity bill for the factory when received, $3,000.

54. Problem 3: Conversion Entries
6. Work-in-process inventory 54,000
Manufacturing overhead ,000
Answer: Manufacturing overhead of $54,000 was applied to production.

55. Problem 3: Conversion Entries
7. Work-in-process inventory 63,000
Manufacturing overhead ,000
Answer: Manufacturing overhead of $63,000 was applied to production.

56. Problem 3: Conversion Entries
8. Finished goods 175,000
Work-in-process inventory 175,000
Answer: Completed jobs costing $175,000.

57. Cheesecake Factory
Wal-Bots