Comparing Merchandising and Manufacturing Activities

1. Merchandisers . . . Buy finished goods. Sell finished goods. Manufacturers . . . Buy raw materials. Produce and sell finished goods. Next Page Click Here MegaLoMart Comparing Merchandisingand Manufacturing Activities

2. Next Page Click Here DirectMaterials DirectLabor FactoryOverhead Manufacturing Costs The Product

3. Next Page Click Here Direct Materials Those materials that becomean integral part of the product andthat can be conveniently traced directly to it. Example:A radio installed in an automobile

4. Next Page Click Here Direct Labor Those labor costs that can be easily traced to individual units of product. Example:Wages paid to automobile assembly workers

5. Next Page Click Here Wages paid to employees who are not directly involved in production.Examples: maintenance workers, janitors and security guards. Materials used to support the production process. Examples:lubricants and cleaning supplies used in the automobile assembly plant. Factory Overhead Manufacturing costs that cannot be traced directly to specific units produced. Examples:Indirect labor and indirect materials

6. Next Page Click Here Materials waiting to be processed. Partially complete products – some material, labor, or overhead has been added. Completed products awaiting sale. Balance Sheet Merchandiser Current Assets: • Cash • Receivables • Prepaid expenses • Merchandise inventory • Manufacturer • Current Assets: • Cash • Receivables • Prepaid Expenses • Inventories • Raw Materials • Goods in Process • Finished Goods

7. Next Page Click Here The Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

8. Next Page Click Here Manufacturing Cost Flows Income StatementExpenses Balance Sheet Inventories Costs Material Purchases Raw Materials Direct Labor Goods in Process FactoryOverhead Cost of GoodsSold FinishedGoods Selling andAdministrative Expenses Selling andAdministrative PeriodCosts

9. Next Page Click Here Product Costs – Raw Materials Beginning inventory is the inventory carried over from the prior period.

10. Next Page Click Here Product Costs – Direct Materials As items are removed fromraw materials inventory and placed into theproduction process,they are called direct materials.

11. Next Page Click Here Product Costs – Total Manufacturing Costs Conversion costs are costs incurred to convert the direct material into a finished product.

12. Next Page Click Here Product Costs – Goods in Process All manufacturing costs incurred during the period are added tothe beginning balance ofgoods in process.

13. Next Page Click Here Product Costs – Cost of Goods Manufactured Costs associated with the goods that are completed during the period are transferred to finished goods inventory.

14. Next Page Click Here Product Costs – Cost of Goods Sold