Chapter 16 Pgs : 728-731

1. Chapter 16Pgs: 728-731 By: Julia, Liz, Jason, Kishawn

2. Inventories of a Manufacturing Business Types of Inventory: Materials Inventory-raw materials on hand and available for use in the manufacturing process Work in Process Inventory- partially complete goods on which production activates have been started but not yet completed Finished Goods Inventory- unsold finished products available for sale to customers

3. Materials Inventory

4. Work in Process Inventory

5. Finished Goods Inventory

6. Manufacturing Companies Use… Perpetual Inventory System: Provide managers with up-to-date information about amounts and costs Flow of manufacturing costs through inventory accounts and into cost of goods sold is easy to follow

7. Finished Goods MegaLoMart Manufacturing Overhead Direct Labor Goods Sold Flow of Costs Parallels and Flow of Physical Goods Direct Materials Purchased Direct Materials Used Work with each other through the production process

8. Accounting for Manufacturing Costs Companies rely on cost information to: • Monitor production efficiency • Set prices • Maintain control over inventories

9. Direct Materials • The raw materials that become part of a finished product, providing that it is possible to keep track of those raw materials conveniently and on a per product basis • Ex. Mounting Biking Company • Alloy tubing for bike frames, brakes, shifting levers, pedals, sprockets, tires etc.

10. Indirect Materials • Materials in the production process that can’t be traced conveniently or directly on a per product basis • Ex. Mountain Biking Company • Bearing grease, welding materials, and cleaning products. • Can’t be easily counted/measured like pedals or tires on each bike that is produced

11. Finished Goods • Completely manufactured products which are ready for sale and delivery to the marketplace • A product assembled from direct materials • Ex. A fully assembled bike that’s ready to be sold would be viewed as a finished good a Mountain Biking Company • The companies that sold their products to the Mountain Biking Company would view their products as finished goods

12. Direct Labor: • Recording payroll cost to the direct workers • Direct workers are the ones who work directly on the product • Jobs are on a classification and job description chart

13. Aspects of Accounting First Aspect: pays the employees at the end of each pay period Direct Labor xx Cash xx This are the entries one would use to pay the employee

14. Aspects of Accounting Second Aspect: Work in Process Inventory xx Direct Labor xx This account is the amount you pay the employees to the amount it cost to make the product Cost of labor account

15. Direct Labor • Direct labor is similar to the cost of the products a company buys. • One difference is that materials are bought before they are used. Material Inventory xx Cost of unused material on hand xx

16. Direct Labor • Debits to direct labor account are not paid until the end of the period • If balance sheet falls between payroll dates, direct labor will be a credit • INDIRECT LABOR • Costs are handled for indirect materials cost • They are a part of the companies overhead • Employees who do not work directly on goods that are being manufactured