Accounting for Manufacturing Companies

Costs that are directly related to the production of goods, such as raw materials and labor.

Costs that are not directly related to the production of goods but are incurred in the period in which they are incurred, such as selling, administrative, and marketing expenses.

The cost of materials that can be directly traced to a specific product, such as the steel used in a bike frame.

The cost of labor that can be directly traced to a specific product, such as the wages of an assembly worker.

Costs that are not directly related to the production of goods but are necessary to support the business, such as salaries of administrative staff and rent of office space.

Costs that vary with the level of production, such as the cost of raw materials and direct labor.

Costs that remain the same regardless of the level of production, such as rent and salaries of managers.

The cost concepts used in manufacturing companies can generally be applied to service companies as well.

The cost of transforming raw materials into finished goods. This includes all direct labor and factory overhead costs.

Inventory that is partially completed, not yet ready for sale.

The cost of goods that have been completed and are ready for sale.

The cost of goods that have been sold to customers.

The process of calculating the value of goods available for sale and subtracting the value of ending inventory to determine the cost of goods sold.

The cost of goods sold (COGS) for manufacturers is slightly different from merchandisers due to the inclusion of manufacturing costs.

The flow of manufacturing activities describes how raw materials are transformed into finished goods. This includes stages like acquiring materials, production, and quality control.

A schedule of cost of goods manufactured (COGM) summarizes the costs incurred in producing goods during a specific period. It helps to understand how much a company spent on its manufacturing process.

Manufacturing overhead consists of all the indirect costs associated with the production process. These costs cannot be directly traced to specific units.

Examples: Factory rent, utilities, and depreciation of factory equipment.

The total cost of producing goods during a period, calculated by adding direct materials, direct labor, and factory overhead costs.

The cost of goods that have been completed and are ready for sale during a period.

A statement that summarizes the costs of manufacturing goods during a specific period, calculating the cost of goods manufactured.

Includes all direct labor costs incurred during the current period, regardless of whether the goods are fully completed or still in process.

The value of partially completed goods that are still in the production process at the end of a period.

The value of partially completed goods that are still in the production process at the beginning of a period.

The value of materials directly used in the production of goods during a given period.

The costs incurred in the factory, excluding direct materials and direct labor, such as rent, utilities, and depreciation of factory equipment.

A measure of how efficiently a company uses its raw materials. It is calculated by dividing the cost of raw materials used by the average raw materials inventory.

The number of days it takes a company to use up its raw materials inventory. It is calculated by dividing the ending raw materials inventory by the cost of raw materials used and multiplying by 365.

The beginning raw materials inventory plus the ending raw materials inventory, divided by 2.

The cost of raw materials that are directly used in the production of goods.

The raw materials that are currently on hand and ready to be used in production.

A business approach where companies focus on meeting customer needs and exceeding expectations. This involves understanding customer preferences, providing excellent service, and continuously improving products and services.

A management philosophy focused on improving quality throughout all aspects of a business. It involves setting high standards, encouraging employee participation in quality improvement, and identifying and eliminating waste.

A production strategy where companies receive materials and produce goods only when needed. This minimizes waste and inventory costs by ensuring that products are completed just in time for customer delivery.

A global trend where organizations operate across international borders, requiring them to manage operations, resources, and accounting in a decentralized and interconnected way.

A service industry-focused economy where intangible products and services are the primary drivers of growth and economic value.

The interconnected series of activities that a company undertakes to create and deliver value to its customers. It involves various stages, from sourcing raw materials to delivering finished products.

A method for streamlining business operations and reducing waste by identifying and eliminating unnecessary activities. It aims to improve efficiency and effectiveness.

The use of internet-based technologies to conduct business transactions, manage inventory, and interact with customers. It has revolutionized how businesses operate and interact with the wider world.