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INVENTORY

INVENTORY. Accounting ASW Summer 2007. Manufacturing Accounting. Manufacturing accounting what if you make inventory rather than buying? how do we value inventory/CGS for a manufacturing firm? should include all costs of acquiring the product and making it ready for sale.

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INVENTORY

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  1. INVENTORY Accounting ASW Summer 2007

  2. Manufacturing Accounting • Manufacturing accounting • what if you make inventory rather than buying? • how do we value inventory/CGS for a manufacturing firm? • should include all costs of acquiring the product and making it ready for sale

  3. Overview of Manufacturing Firm • Period costs - Selling, general and administrative, etc. • Production costs

  4. Period Costs • Examples - corporate headquarters - marketing, advertising - finance, interest - research and development • Generate period costs charged to expense - just as in a merchandising firm

  5. Product Costs • Identify all relevant costs of “acquiring” • Direct labor • labor costs which can be linked to specific product • typically costs of employees working directly on that product • assigned based on actual labor used

  6. Direct materials • materials costs which can be linked to products • typically major components of the product • assigned based on actual materials used

  7. Overhead--can’t be linked to products • indirect labor • e.g., janitorial, supervisor • indirect materials • e.g., supplies, small components • overhead • e.g., depr., rent, utilities on production facilities • allocate based on “drivers” • e.g., direct labor, direct materials

  8. Are these product or period costs? Cutting-machine operator Factory janitor Factory payroll clerks Factory superintendent General office secretary Guards at the factory gate Inspectors in a factory Factory maintenance workers Factory security guards General office clerks President of the firm Sales manager Raw materials receiving room workers Sweepers who clean a retail store Traveling salespersons

  9. Physical flow • Raw materials into warehouse • Materials and labor on plant floor • Finished product to warehouse • Shipped out when sold

  10. Cost allocation • Cost of materials inputs into raw material inventory when acquired • Cost of materials, labor & overhead into work in process inventory as produced • Total cost incurred into finished goods inventory when completed • Total cost into cost of goods sold at sale

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