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Chapter 29. Manufacturing Costs. Prepared by Diane Tanner University of North Florida. Buy products Sell products. Buy materials Use labor to produce products Sell products. Manufacturing vs. Merchandising Differences. Merchandising Companies. Manufacturing Companies.
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Chapter 29 Manufacturing Costs Prepared by Diane Tanner University of North Florida
Buy products Sell products Buy materials Use labor to produce products Sell products Manufacturing vs. Merchandising Differences Merchandising Companies Manufacturing Companies
Manufacturing vs. Merchandising Inventories Merchandising Companies Manufacturing Companies Balance Sheet Current Assets Inventories….$4,000 Balance Sheet Current Assets Raw Materials……..$4,000 Work in Process…...1,000 Finished Goods…….1,200 3 separate inventories Both Merchandising & Manufacturing Companies Income Statement Sales……………………………$34,000 Less cost of goods sold……...21,000
Manufacturing or Non-manufacturing? The Key Think about where in the process the cost occurs. If the cost occurs in the factory while being produced If the cost occurs after the product is produced or outside the factory Manufacturing Costs Non-Manufacturing Costs All costs necessary to get the inventory ready to sell
Product and Period Costs Manufacturing Costs Nonmanufacturing Costs Product Costs Period Costs Expensed when the product is sold Expensed in a period unrelated to sales
Product Costs for Manufacturers Three product costs go into inventories: • Direct Materials • Direct Labor • Manufacturing Overhead • Includes all indirect manufacturing costs
Direct and Indirect Product Costs Can be traced to products • Direct product costs • Includes direct materials and direct labor • Indirect product costs • Manufacturing overhead • Also called • Indirect costs • Factory overhead Cannot be traced directly to specific units produced NOTE: Only product costs (not period costs) are labeled as direct or indirect.
Direct Material Costs • Material costs that can be traced to products or services provided • Includes all direct materials necessary to get the product ready to sell • Invoice cost to buy materials • Less cash discount • Plus sales taxes • Plus freight-in Parallels accounting for merchandise inventory
Direct Labor • Labor costs that can be directly traced to products or services provided • Includes all direct labor needed to get the product ready to sell • Assumed to be hourly wages
Manufacturing Overhead Indirect Materials Indirect Labor Costs Related to the Manufacturing Facility INDIRECT manufacturing (product) costs that cannot be traced directly to specific units produced, but are costs of production Manufacturing Overhead
Product Cost Examples Examples: Lid, bottle, label, water DirectMaterials ManufacturingOverhead Examples: Factory supervisor and factory janitor salaries (indirect labor), indirect materials (supplies), factory rent/ insurance/depreciation/utilities DirectLabor Examples: Wages and fringes for assembly and packaging workers Directly traceable The Product
Known as ‘Operating Expenses’ Not associated with the production of goods Examples: Selling, advertising, marketing costs, delivery costs General and administrative ‘corporate’ costs Corporate rent, insurance, utilities, depreciation R&D costs, product development costs, accounting and payroll department costs, President Delaney’s salary Period Costs
