Download Manufacturing Accounting

Chapter 25
Manufacturing Accounting
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 1
Preparing a cost of goods manufacturing
schedule
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Manufacturing Accounting

Specialized accounting concepts and
techniques required to record, report,
and control the operations of a
manufacturing company
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Costs
Separate Manufacturing from Administrative
 Manufacturing Costs
◦ Raw materials
◦ Direct labor
◦ Overhead

Administrative Costs
◦ Selling
◦ Administrative
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Manufacturing Costs

Raw materials – material that is to be
processed into a finished product

Direct labor – wages of those person whose
efforts directly affect the quality or other
characteristics of the products manufactured
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Manufacturing Costs

Overhead – all other manufacturing costs not
included in raw material or direct labor
◦
◦
◦
◦
◦
◦
◦
◦
Maintenance wages/supplies
Production supervision & expenses
Depreciation expense of manufacturing assets
Rent expense for buildings/machinery
Electricity for manufacturing
Insurance expense for manufacturing
Indirect labor
Manufacturing clerical wages
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Manufacturing Inventories
Raw materials inventory – cost of items of
raw material being held for production + freight
costs
 Work-in-process inventory – cost of
products being processed
 Finished goods inventory – manufacturing
cost of products that have been completed and
are awaiting shipment to customers

© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Cost of Goods Sold
•
•
•
Different from a merchandise co.
Purpose is to properly match
manufacturing costs with sales
Must include beginning & ending finished
goods
Beginning Finished Goods Inventory
+ Cost of Goods Manufactured
= Cost of Good Available for Sale
- Ending Finished Goods Inventory
= Cost of Goods Sold
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Cost of Goods Manufactured
Raw materials
used
Direct
labor
Factory
overhead
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Finished
Goods
Inventory
Work-inProcess
inventory
Cost of
goods sold
LO-1
Cost of Goods Manufactured

Cost of Raw Materials Used:
Beginning raw materials inventory
+ Purchases of Inventory
- Ending raw material inventory
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Cost of Goods Manufactured

Total manufacturing costs incurred:
Cost of raw materials used
+ Direct labor
+ Factory Overhead
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Cost of Goods Manufactured

Cost of goods manufactured:
Total manufacturing costs
+ Beginning work-in-process inventory
- Ending work-in-process inventory
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Problem 25B-1
Total manufacturing costs
Work-in-process Inventory, 7-31
Work-in-process Inventory, 7-31
Total Cost of Goods Manufactured
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-1
Learning Objective 2
Journalizing transactions recording the
manufacturing process
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Source Documents
Required data are submitted to cost
accountants.
 Timely receipt of legible documents is
often a problem.
 Employees must be aware of importance.

© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Source Documents



Receiving reports - prepared by receiving
department; acknowledges receipt of
materials & supplies from vendors
Material requisitions - documents
initiated by manufacturing personnel or
other users to request material from
inventory warehouse
Clock card - card used by each hourly
employee, collected each week by payroll
department
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Source Documents
Lot tickets - (move tickets) documents
written by dept. mgrs. to reflect
movement of products or parts of
products from one dept. to another
 Labor distribution report –
by-product of payroll allocated to direct &
maintenance labor, etc…
 Bills of lading - documents that show
shipment of products to consumers

© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Flow of Manufacturing Costs
Raw
Materials
Indirect
Factory Applied
Overhead
Labor
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Direct
Work-inProcess
Finished
Goods
Cost of
Goods
Sold
Overhead Application

Two accounts
◦ Overhead – Control: debit to accumulate
all actual overhead costs
◦ Overhead – Applied: credit to apply
overhead to production
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Overhead Application Rate
Annual overhead / Annual activity base
$250,000/$750,000 = 33%
 Activity base examples
◦ Direct labor hours
◦ Direct labor costs
◦ Machine hours
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Overhead Application Rate
Overhead based on direct labor hours:
Annual overhead / Annual direct labor hours
$250,000 / 150,000 hours = $1.67/hr
Direct labor hours for month = 1,500 hrs
1,500 x $1.67 = $2,505
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Overhead Application Rate
Overhead based on machine hours:
Annual overhead / Annual machine hours
$250,000 / 60,000 machine hours = $4.17/hr
Machine ran 2,000 hours
$4.17 x 2,000 = $8,333.33
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Problem 25B-2
Work-in-Process
70,000
75,000
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Problem 25B-2
Work-in-Process
70,000
75,000
60,000
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Problem 25B-2
Work-in-Process
70,000
75,000
60,000
180,000
Bal. 25,000
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 3
Preparing a worksheet for a
manufacturing company
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Worksheet for Manufacturing Company

New set of columns for statement of cost
of goods manufactured
◦ Beginning balances of raw materials and workin-process are listed in debit column
◦ Ending balance are entered in credit column
◦ Manufacturing expenses in debit column
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Worksheet for Manufacturing Company

Income Statement columns
◦ Beginning balance of finished goods in debit
column
◦ Ending balance in credit column
◦ Revenues are credited and expenses are
debited
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Worksheet for Manufacturing Company

Balance Sheet columns
◦ Is done similar to a traditional balance sheet
◦ Assets is debited and liabilities and owner’s
equity are credited
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Reports Prepared from the Worksheet

Statement of Cost of Goods Manufactured-
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-3
Reports Prepared from the Worksheet

Income Statement
Samolis Manufacturing
Income Statement
For Month Ended March 31, 20XX
Net Sales:
Cost of Goods Sold
Finished Goods Inventory (Beg.)
Cost of Goods Manufactured
Cost of Goods Available for Sale
Less: Finished Goods Inventory (End.)
Cost of Goods Sold:
Gross Profit on Sales
Operating Expenses:
Selling Expense
Admistrative Expense
Total Operating Expenses
Net Income (before taxes)
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
$ 398,000
$ 40,000
267,000
$ 307,000
28,000
$ 279,000
$ 119,000
$ 15,450
9,560
$ 25,010
$ 93,990
LO-3
Reports Prepared from the Worksheet

Balance Sheet
SAMOLIS MANUFACTURING
BALANCE SHEET
MARCH 31, 20XX
ASSETS
Current Assets
Cash
Accounts Receivable
Less: Allowance for Doubtful Accounts
Inventories
Raw Materials
Work-in-Process
Finished Goods
$
$
Prepaid Expenses
Factory Supplies
Prepaid Factory Insurance
Total Current Assets
Plant and Equipment:
Factory Machinery
Less: Accum. Deprec., Factory Machinery
Total Assets
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
SAMOLIS MANUFACTURING
BALANCE SHEET
MARCH 31, 20XX
$
350,000
245,000
130,000 $
115,000
96,000
18,000
28,000 $
2,500
3,000 $
$
Liabilities and Stockholders' Equity
Current Liabilities
Notes Payable
Accrued Payroll Payable
$ 145,000
21,000 $ 166,000
142,000
5,500
612,500
Stockholder's Equity
Common Stock, $100 par 2,000 shares
Retained Earnings
$ 200,000
305,000 $ 505,000
Total Liab. & Stockholders' Equity
$
78,000
19,500 $
$
58,500
671,000
$ 671,000
LO-3
End of Chapter 25
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater