Manufacturing Accounting

Index

Introduction

1. Manufacturing Accounting
1.1 Manufacturing operations
1.2 Elements of manufacturing costs
1.2.1 Direct Materials
1.2.2 Direct Labor
1.2.3 Factory Overhead
1.2.3.1 Indirect Labor
1.2.3.2 Factory Supplies
1.3 Manufacturing Inventories
1.3.1 Raw Materials inventory1.3.2 Work in process inventory
1.3.3 Finished goods inventory
1.4 Manufacturing accounts
1.5 Determining the cost of manufacturing inventory

Conclusion

1. Manufacturing Accounting
MANUFACTURING ACCOUNT is an accounting statement that is an integral part of the final accounts of a manufacturing organization. For any particular period, it indicates, amongother things, prime cost of manufacturing, manufacturing overhead, the total manufacturing cost, and the manufacturing costs of finished goods.

1.1 Manufacturing Operations

Manufacturing operations is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrialproduction, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing other, more complex products, such as aircraft, household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users – the "consumers"
Manufacturing takes turns under all types of economic systems. In afree market economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation.
1.2 Elements of manufacturing costs
Manufacturing costsare those costs that are directly involved in manufacturing of products and services. Examples of manufacturing costs include raw materials costs and salary of labor workers. Manufacturing cost is divided into three broad categories by most companies.

1.2.1 Direct Materials cost:
The materials that go into final product are called raw materials. This term is somewhat misleading, since itseems to imply unprocessed natural resources like wood pulp or iron ore. Actually raw materials refer to any materials that are used in the final product; and the finished product of one company can become raw material of another company. For example plastic produced by manufacturers of plastic is a finished product for them but is a raw material for Compaq Computers for its personal computers.Direct Materials are those materials that become an integral part of the finished product and that can be physically and conveniently traced to it. Examples include tiny electric motor that Panasonic uses in its CD players to make the CD spin. According to a study of 37 manufacturing industries material costs averaged about 55% of sales revenue.
Sometimes it is not worth the effort to trace the costsof relatively insignificant materials to the end products. Such minor items would include the solder used to make electrical connection in a Sony TV or the glue used to assemble a chair. Materials such as solder or glue are called indirect materials and are included as part of manufacturing overhead, which is discussed later on this page.
1.2.2 Direct labor cost:

The term direct labor isreserved for those labor costs that can be essentially traced to individual units of products. Direct labor is sometime called touch labor, since direct labor workers typically touch the product while it is being made. The labor cost of assembly line workers, for example, is a direct labor cost, as would the labor cost of carpenter, bricklayer and machine operator
Labor costs that cannot be...