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Principles of Accounting II Lesson #8 Process Manufacturing By Laurie L. Swanson Click the button below to navigate to the next slide.

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Presentation on theme: "Principles of Accounting II Lesson #8 Process Manufacturing By Laurie L. Swanson Click the button below to navigate to the next slide."— Presentation transcript:

1 Principles of Accounting II Lesson #8 Process Manufacturing By Laurie L. Swanson Click the button below to navigate to the next slide.

2 Process Manufacturing Process manufacturing involves mass production of homogenous goods in a continuous flow of steps (known as processes). Process cost accounting is used for process manufacturing systems.

3 More About Process Manufacturing In process manufacturing, goods are produced by moving through a series of steps or departments. In each step (or department), the product receives materials and/or labor and consumes overhead. The goods are considered in process until they pass through the final department and receive the last of their materials and/or labor. The goods are then transferred out of production as finished goods. Goods are continuously moving through the production process and being transferred to finished goods. Likewise, goods in process continuously accumulate costs.

4 Product Costs Unlike job order manufacturing, in process manufacturing, large batches of standardized products are produced in a continuous sequence. Tracking the cost of a single item would be cumbersome, inefficient, and costly. Therefore, in process manufacturing, costs are accumulated by department (or process), not by product.

5 Manufacturing Costs There are numerous costs involved in the production (manufacture) of goods and it is important that all manufacturing costs be accounted for accurately and completely. Recall that costs can be classified by function as either product (costs necessary to produce a product) or period (costs which apply to running the overall business). When accounting for manufacturing costs, only product costs are considered.

6 Product Costs The three components of product costs are: Direct Materials – raw materials which can be easily and efficiently traced to a specific process Direct Labor – labor applied directly to a specific process Overhead – all product costs which are neither direct materials nor direct labor

7 Watch View this classic clip on YouTube (1:46) to get a sense of process manufacturing.classic clip on YouTube

8 Learn While this is a fun clip to watch, it actually helps demonstrate some of the concepts of process manufacturing. What did you notice that relates to process manufacturing systems?

9 Learn Lucy and Ethel were working in the Wrapping Department. Did you notice the mention of other departments? Which ones were mentioned by name? Boxing Department Packing Department

10 Learn Did you see that each product (candy) was the same and the process was applied in a continuous manner (conveyer belt)? Did you see that the partially completed candy received additional material (wrapping paper) and labor (such as it was) in Lucy and Ethel’s department?

11 Learn What costs were incurred in the wrapping department? Direct materials – candy wrappers Direct labor – Lucy and Ethel Overhead – electricy, equipment depreciation, production supervisor, et al

12 Learn What do you think happened to the candy when it left the wrapping department? It went to the packing department where it would receive the final materials and labor. The candy would then be considered finished goods.

13 End of Lesson #8 Overview of Process Manufacturing


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