Lesson 34: Elements of Manufacturing e.g.

wages and salaries of factory

Costs, Product Costs and Period Costs supervisors, forklift operators, cleaners
& security guards
Correlate Manufacturing with Merchandising
Business, Elements of Manufacturing Costs, Accounts under:
Product Costs and Period Costs
Merchandising vs Manufacturing
On asset account:
What is Manufacturing? Inventory Inventory:
“To Make by hand” Direct Materials
Work-in-process
Manufacturing Costs Finished Goods
Costs to make the product:
❖ Direct materials on Liability & Equity: no difference
Raw materials that are directly used
in making the product. on Revenue: no difference
e.g. wood and paint to make tables Sales
❖ Direct Labor (Labor) Less: Sales Discounts
Sales returns & allowances
Cost of workers that are directly
involved in manufacturing the on Cost of Goods Sold:
product. Purchases Direct Materials
e.g. people working or operating -Purchase Discount Direct Labor
machines -Purchase Returns Factory Overhead
& Allowances Factory
❖ Manufacturing/Factory overhead
Expenses
(Expenses on production) +Freight-in Indirect Materials
All expenses in the factory that Indirect Labor
aren’t direct materials and direct
on Expenses: no difference
labor
Selling Expense
➢ Factory expenses ● Delivery expenses, freight out,
Expenses in the factory or marketing expenses, salaries of
production area salesman and sales personnel,
e.g. rent expense, utilities expense, commissions, supplies, rent, utilities
insurance expense, depreciation and other expenses used by sales
and/or marketing department
expense of the factory building and
Administrative Expenses
equipment ● Salaries, utilities, rent depreciation
➢ Indirect materials and other expenses of administration
Used in manufacturing the product offices (office of the pres., finance,
but the cost is insignificant. HRO, IT)
e.g. nuts, screws and bolts in car
manufacturing. Nails and sandpaper in Flow of Manufacturing Costs**
furniture manufacturing 3 Inventory accounts of Manufacturing (e.g.
➢ Indirect labor furniture business)**
Cost of personnel not directly Warehouse
involved in manufacturing the Production Area / Factory Building
product but forms part of the factory Sales Area / Finished Goods Storage
operations.
Product Cost Per Unit
Total Product Cost (Manufacturing Cost)
= Direct Materials + Direct Labor +
Factory Overhead

Product Cost per Unit

= Total Product Cost / No. of Units
Produced

Prime Cost and Conversion Cost per

Unit
Total Prime Cost
= Direct Materials + Direct Labor

Prime Cost per Unit

= Total Prime Cost / No. of Units
Produced
Cost of Goods Sold for Manufacturing**
Total Conversion Cost
= Direct Labor + Factory Overhead Direct materials, inventory, beg.
+Purchases (+Freight-in, Disc./Ret.)
Conversion Cost per Unit - Materials, inventory, end
= Total Conversion Cost / No. of Units
Produced Direct Materials Used

Salaries, Direct Labor

Lesson 35: The Preparation of the
Income Statement with Emphasis on Factory Expenses
Statement of Cost of Goods Sold of (Rent, Insurance, Utilities, Depreciation,)
Manufacturing Business Indirect Materials
Indirect Labor
**
EA05
1. In the income statement of manufacturing
business, goods placed in process less wip
end is (Cost of goods manufactured).

2. MC = 1702600
GPiS = -846410
GAFS = 1646900
COGS = -55700
NP = 4076200

3. in the income statement of manufacturing

business, adding finished goods -
beginning, from the cost of goods merchandise available for sale, it will
manufactured will give provide (Cost of goods sold)
(merchandise/goods available for sale). 11. Classify the following costs if direct
material, direct labor, factory overhead or
4. MC = 2040000 selling/administrative expense: Cleaning
GPS = 2040000 supplies in the factory (factory overhead).
COGM = 1891000 12. Direct Materials + Direct Labor +
GAFS = 3371000 Factory Overhead = (Product cost)
COGS = 1531000 13. In manufacturing business, the cost of
paints and varnishes is classified as (direct
5. Classify the following costs if direct materials)
material, direct labor, factory overhead or 14.In manufacturing business, prime cost
selling/administrative expense: Overtime consists of (direct materials and direct
expense of factory workers (Direct Labor) labor)
15. *
6. Direct Materials Used: 89,000 16. It is both a prime cost and conversion
cost (Direct labor)
Total Manufacturing Costs: 197,000 17. Classify the following costs if direct
material, direct labor, factory overhead or
COGM: 192,000
selling/administrative expense: Utilities in
COGS: 185,000 factory (factory overhead)
18. *
Net Income: 83,000

7. Total Manufacturing Costs: 6,931,910

1. Goods in Process: 7,680,810

2. COGM: 6,981,360
3. Goods Available for Sale:
12,382,160
4. COGS: 5,481,760

8. Total Manufacturing Costs: 7,504,560

1. Goods in Process: 10,795,010

2. Goods Available for Sale:
14,362,560
3. COGS: 6,117,560
4. Net Profit: 883,205

9. *
10. In the income statement of
manufacturing business, if finished goods
inventory - end is deducted from