1. Comparing Merchandising and Manufacturing Activities
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Comparing Merchandising and Manufacturing Activities
Merchandisers . . .
Buy finished goods.
Sell finished goods.
Manufacturers . . .
Buy raw materials.
Produce and sell finished goods.
MegaLoMart

2. Manufacturing Overhead
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Manufacturing Costs
Direct Materials
Direct Labor
Manufacturing Overhead
The Product

3. Example: A radio installed in an automobile
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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

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

5. Manufacturing Overhead
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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.

6. Materials waiting to be processed. Completed products awaiting sale.
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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.

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

8. Manufacturing Cost Flows
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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

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

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

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

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

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

14. Product Costs – Cost of Goods Sold
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Product Costs – Cost of Goods Sold