What are the Primary Activities in the Conversion Process? Schedule production Obtain raw materials...
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• 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) Chapter 9 – Manufacturing Process Raw Materia ls Work In Process Finishe d Goods Cost of Goods Sold Direct Labor Applied Manufacturi ng Overhead Purchas es Man Overhead Under / Over - Selling & Admin Costs S&A Exp
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Transcript of What are the Primary Activities in the Conversion Process? Schedule production Obtain raw materials...
• 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)
Chapter 9 – Manufacturing Process
RawMaterials
WorkIn
Process
FinishedGoods
Cost ofGoodsSold
Direct Labor Applied ManufacturingOverhead
Purchases
Man Overhead Under / Over-applied
Selling &Admin Costs
S&A Exp
• 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– Increase work-in-process inventory
• Store finished goods– Increase finished goods inventory– Decrease work-in-process inventory
Chapter 9 – Manufacturing Process
RawMaterials
WorkIn
Process
FinishedGoods
Cost ofGoodsSold
Direct Labor Applied ManufacturingOverhead
Purchases
Man Overhead Under / Over-applied
Selling &Admin Costs
S&A Exp
• What is the basic flow of information in the conversion process?
• A customer places an order and production is scheduled.• Direct materials are requisitioned and recorded.• Labor is used and recorded• A cost record is prepared and goods are manufactured.• Goods are finished and recorded.
Chapter 9 – Manufacturing Process
RawMaterials
WorkIn
Process
FinishedGoods
Cost ofGoodsSold
Direct Labor Applied ManufacturingOverhead
Purchases
Man Overhead Under / Over-applied
Selling &Admin Costs
S&A Exp
• What is the purpose of the inventory accounts in a manufacturing company and what types of activities cause the accounts to increase and decrease?
• Direct materials inventory—the cost of direct materials on hand; increases when direct materials are purchased; decreases when direct materials are issued into production
• Work-in-process inventory—the cost of products started, but not completed; increases when direct materials and direct labor are used in production and when manufacturing overhead is assigned to production; decreases when goods are finished and transferred out (cost of goods manufactured)
• Finished goods inventory—the cost of products finished, but not sold; increases when goods are finished and transferred in; decreases when goods are sold (cost of goods sold)
Chapter 9 – Manufacturing Process
RawMaterials
WorkIn
Process
FinishedGoods
Cost ofGoodsSold
Direct Labor Applied ManufacturingOverhead
Purchases
Man Overhead Under / Over-applied
Selling &Admin Costs
S&A Exp
• Definitions– Direct (Raw) Materials Cost
• Physically traceable items / costs to the final product
– Direct Labor Cost• Costs of employees who actually manufacture the product
– Manufacturing Overhead Costs (Applied)• Represents indirect (materials and labor) manufacturing costs
– Manufacturing Overhead Costs (Actual)• The real amount MOH costs us (prob not going to = applied amt)• Need to adjust in our COGS for accuracy
– Selling & Administrative Costs• Represents other costs related to selling the item
Chapter 9 – Manufacturing Process
RawMaterials
WorkIn
Process
FinishedGoods
Cost ofGoodsSold
Direct Labor Applied ManufacturingOverhead
Purchases
Man Overhead Under / Over-applied
Selling &Admin Costs
S&A Exp
• CalculationsBeginning
+ Purchases of R.M.
= Cost of R.M. avail for use
- R.M. Issued into production
= Ending R.M. Inventory
Chapter 9 – Manufacturing Process
Raw Mat
Begin
I’m headed to WIP!!
• CalculationsBeginning+ Direct Mat Issued+Direct Labor Used+ Applied Manu O.H.= Cost of goods in Process-Cost of goods manufactured=Ending WIP Inventory
Chapter 9 – Manufacturing Process
WIP
Begin
I’m headed to Finished
Goods!!
• CalculationsBeginning Fin Goods Inv+Cost of Goods Manufactured=Cost of Goods Avail for Sale-Cost of Goods Sold (COGS)=Ending Fin Goods Inv
Chapter 9 – Manufacturing Process
Finished Goods
Begin
I’m headed to COGS!!
• CalculationsBeginning COGS+ Cost of Finished Goods Sold+ / - Man OH Under / Over Applied=Total COGS For The Period
Chapter 9 – Manufacturing Process
COGS
Begin
• Overhead… Isn’t it a cost to the manufacturing (WIP)?– Yes!!! So, how do we “get it into” WIP?– Overhead occurs differently than DM and DL!– DM / DL happen regularly… easy to match with WIP– MOH happens sporadically
• Tough to match directly (that’s why it’s “indirect”) to WIP• Must “Apply” it to WIP to match it up• How do we Apply it?
– A “guess-timation” of the MOH costs– What if we “Apply it” wrong? (which we will, not going to be dead on!)– Have to adjust our COGS
» Overapplied (too much) needs to decrease COGS» Underapplied (not enough) needs to increase COGS
• So… what do we do???– How do we Journalize it?
Chapter 9 – Overhead Application
Chapter 9 – Manufacturing Process• Definitions– Direct Materials Cost
• Physically traceable items / costs to the final product
– Direct Labor Cost• Costs of employees who actually manufacture the product
– Manufacturing Overhead Costs• Represents indirect (materials and labor) manufacturing costs
– Selling & Administrative Costs• Represents other costs related to selling the item
