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

Manufacturing Overhead Next Page Click Here Manufacturing Costs Direct Materials Direct Labor Manufacturing Overhead The Product

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

Example: Wages paid to automobile assembly workers 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

Manufacturing Overhead Next Page Click Here Manufacturing Overhead Manufacturing costs that cannot be traced directly to specific units produced. Examples: Indirect labor and indirect materials 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.

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

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

Manufacturing Cost Flows Next Page Click Here Manufacturing Cost Flows Income Statement Expenses Balance Sheet Inventories Costs Material Purchases Raw Materials Direct Labor Work in Process Manufacturing Overhead Cost of Goods Sold Finished Goods Selling and Administrative Expenses Selling and Administrative Period Costs

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

Product Costs – Direct Materials Next Page Click Here Product Costs – Direct Materials As items are removed from raw materials inventory and placed into the production process, they are called direct materials.

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

Product Costs – Goods in Process Next Page Click Here Product Costs – Goods in Process All manufacturing costs incurred during the period are added to the beginning balance of work in process.

Product Costs – Cost of Goods Manufactured 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.

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