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26-2
Accounting forManufacturing Activities
Accounting forManufacturing Activities
Section 1: Accounting for
Manufacturing Activities
Chapter
26
Section Objectives
1. Prepare a statement of cost of goods manufactured. 2. Explain the basic components of manufacturing
cost.3. Prepare an income statement for a manufacturing
business.4. Prepare a balance sheet for a manufacturing
business.
26-3
Manufacturing BusinessesManufacturing Businesses
Merchandising businesses purchase goods to be resold in the same condition and form but at a profit.
Manufacturing businesses purchase and convert raw materials into finished goods to be sold at a profit.
Merchandising Businesses
Comparison
26-4
The Cost of Goods Manufactured line item replaces the Purchases line item on the income statement
Statement of Cost of Goods Manufactured
26-5
Manufacturing Costs Consist of Three Components
RawMaterials
Direct Labor
ManufacturingOverhead
26-6
Raw MaterialsRaw Materials
Raw materials consist of direct and indirect materials.
Examples of direct materials are wood, glue, varnish, or hardware for a furniture maker.
Indirect materials are used to work on the products, but do not become a part of the product.
26-7
Raw Materials and the Statement of Cost of Goods Manufactured
1. Compute total materials available
2. Compute raw materials used
26-8
Examples of Direct Labor CostsExamples of Direct Labor Costs
Salaries of workers who shape the lumber.
Salaries of workers who assemble the pieces into trailers.
Labor costs for workers who paint or finish the final products.
26-9
Indirect LaborIndirect Labor
Costs of personnel who support productionbut are not directly involved in manufacturing (supervisors, janitors, maintenance staff).
26-10
Manufacturing OverheadManufacturing Overhead Manufacturing overhead includes all of the costs that
are not classified as direct materials and direct labor.
Manufacturing overhead may include the following:Indirect labor - Costs attributable to personnel who
support the production process. Indirect supplies Utilities Depreciation Repair and maintenance Property taxes Insurance
26-11
Accounting for Work in Process on the Income Statement
An estimate is made of the costs of raw materials, direct labor, and manufacturing overhead that apply to work in process at the end of the period
26-12
Income Statement for a Manufacturing Concern
Figure taken from the cost of goods manufactured statement
26-13
The balance sheet for a manufacturing business contains three inventory categories
Inventories
Raw Materials 24,000.00
Work in Process 12,000.00
Finished Goods 29,000.00 65,000.00
Trailer Manufacturing CompanyPartial Balance Sheet
December 31, 2013
Inventories and the Balance Sheet for a Manufacturing Business
26-14
Accounting forManufacturing Activities
Accounting forManufacturing Activities
Section 2: Completing the
Accounting Cycle
Chapter
26
Section Objectives5. Prepare a worksheet for a manufacturing business.
6. Record the end-of-period adjusting entries for a manufacturing business.
7. Record closing entries for a manufacturing business.
8. Record reversing entries for a manufacturing business.
26-15
The steps in the accounting cycle do not change for a manufacturing business.
The worksheet must be constructed to facilitate preparation of the cost of goods manufactured statement.
The worksheet has two new columns:
Cost of Goods Manufactured Debit column Cost of Goods Manufactured Credit column
The Accounting Cycle for a Manufacturing Business
The Accounting Cycle for a Manufacturing Business
26-16
Raw Materials Inventory
Work in Process Inventory
Finished Goods Inventory
Direct Labor
Various Manufacturing Overhead Accounts
Manufacturing Summary
The worksheet of a manufacturing business contains several new accounts:
26-17
Adjusting Inventory AccountsAdjusting Inventory Accounts
6. DR Finished Goods Inventory
CR Income Summary for ending inventory amount
4. DR Work in Process Inventory
CR Manufacturing Summary for ending inventory amount
2. DR Raw Materials Inventory
CR Manufacturing Summary for ending inventory amount
5. DR Income Summary
CR Finished Goods Inventory
for beginning inventory amount
3. DR Manufacturing Summary
CR Work in Process Inventory for beginning inventory amount
1. DR Manufacturing Summary
CR Raw Materials Inventory for beginning inventory amount
Finished GoodsWork in ProcessRaw Materials
26-18
Inventory
Uncollectible accounts
Expired insurance
Supplies on hand
Depreciation
Accrued salaries
Payroll taxes on accrued payroll
Income tax payable
Adjusting Entries on the WorksheetAdjusting Entries on the Worksheet