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P2 Manufacturing Learning Material

This document discusses key aspects of manufacturing operations and accounting. It describes how manufacturers buy raw materials and process them into finished goods to sell, unlike merchandisers who resell ready goods. It outlines manufacturing costs like direct materials, direct labor, and manufacturing overhead. It also describes manufacturing inventory accounts and how manufacturing activities are accounted for using cost or non-cost systems, with examples of journal entries.

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86 views5 pages

P2 Manufacturing Learning Material

This document discusses key aspects of manufacturing operations and accounting. It describes how manufacturers buy raw materials and process them into finished goods to sell, unlike merchandisers who resell ready goods. It outlines manufacturing costs like direct materials, direct labor, and manufacturing overhead. It also describes manufacturing inventory accounts and how manufacturing activities are accounted for using cost or non-cost systems, with examples of journal entries.

Uploaded by

chen.abellar.swu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MANUFACTURING OPERATIONS

COMPARING MERCHANDISING AND


MANUFACTURING ACTIVITIES
- Merchandising and manufacturing entities earn
revenues by selling goods.
- Merchandiser buys a product that is ready for resale
while manufacturers buys a raw materials and
processed them into finished goods to sell.
ELEMENTS OF MANUFACTURING COSTS
Manufacturing Cost Categories
Direct Materials- These materials become a physical
part of a finished product.
Direct Labor- It is the compensation of employees or
workers who physically convert raw material inti
finished goods.
Manufacturing Overhead- This includes all
manufacturing cost that cannot be classified as direct
materials or direct labor.
o Indirect materials and supplies
 Glue, thread , rivets, lubricants and small
tolls
o Indirect labor cost
 Salaries of plant managers and engineers,
wages of forklift operators, maintenance and
inspector labor, and machine helpers.
o Other indirect manufacturing costs
 Includes building, machinery and tool
maintenance, real property taxes, property
insurance, rent expense, utilities expense
and deprecation on property and equipment.
These major cost elements are at times combined into
prime cost or conversation costs. Prime costs consist of
direct material and direct labor. Conversation Cost consist
of direct labor and manufacturing overhead.

MANUFACTURING INVENTORY
ACCOUNTS
- Finished Goods Inventory. It is the costs of
completed goods that have remained unsold
at the end of the accounting period.
- Work in Process Inventory. This account
gives the costs of the goods that are in the
manufacturing process but are not yet
complete at the end of the accounting
period.
- Raw Material Inventory. This account holds
the cost of direct materials on hand that is
intended for use in the manufacturing
process.
- Factory Supplies Inventory. It is the cost of
unused indirect materials at period end.

Finished goods inventory, work in process


inventory, raw materials inventory and factory
supplies inventory are assets to the
manufacturing and are reported as current
assets in the statement of financial position.
ACCOUNTING FOR MANUFACTURING
ACTIVITIES
-Two accounting system may be used in accounting
for manufacturing activities -cost and non-cost.
-The cost system keeps perpetual records of the
costs of raw material work in process and finished
goods inventories.
-The non-cost system produces a manufacturing
accountings system based on the periodic inventory
system.
-The cost of raw materials, work in process and
finished goods inventories are based on physical
counts quantities on hand at the end of each period.
-This information is then used to compute the
amounts consumed, finished and solid during the
period.
In the discussion to follow, the non-costs system will
be used.
-The following are the pro-forma journal entries of
the more common transactions for a manufacturing
entry.
2. To record cost of detective raw materials returned
to vendor:
Vouchers Payable
Purchase Returns and Allowances
3. To record payment of account within the discount
period:
Vouchers Payable
Purchase Discounts
Cash bank
In order for a manufacturer to summarize all the
transactions that affect the computation of the cost of
goods manufactured, a manufacturing summary
account is maintained.

STATEMENT OF COST OF GOODS MANUFACTURED

Direct Material Used.


Raw Materials Inventory, Beginning
Add: Net Cost of Purchases:
Purchase-Raw Materials Less: Purchase Returns and
Allowances
Purchase Discount
Net Purchase
Add: Transportation in
Raw Materials Available for Use
Less: Raw Materials Inventory, end
Direct Labor
Manufacturing Overhead
Indirect Labor
Indirect Materials
Deprecation Expense-Factory Bldg.
Repairs and Maintenance-Factory Bldg.
Amortization of Patents
Real Property Taxes
Factory Utilities
Tools Used
Employer`s Payroll Contributions -Factory
Factory Supplies Expense
Miscellaneous Factory Expense
Total Manufacturing Cost
Add: Work in Process, Beginning
Total Cost of Goods Placed in Process
Less: Work in Process, end
Cost of Goods Manufactured

Manufacturing Entity
Finished Goods Inventory, Beg.
Add: Cost of Goods Manufactured
Goods Available for Sale
Less: Finished Goods Inventory, End
Cost of Goods Sold
Total manufacturing costs should not be confused with the
cost of goods manufactured. Total manufacturing costs are
the costs of direct materials used, direct labor and
manufacturing overhead incurred and charged to
production during an accounting period.
As illustrated, observe that the merchandiser used the term
merchandise inventory while the, manufacturer used the
term finished goods inventory.

WORKSHEET FOR A MANUFACTURING ENTITY


The worksheets for a manufacturing entity is basically the
same as that for a merchandising entity except that includes
a pair of columns for cost of goods manufactured.

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