accounting for manufacturing business lecture 24
TRANSCRIPT
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Accounting for Manufacturing Business
Lecture 24
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Lecture Overview
• Difference Between Merchandizing and Service Business
• Accounting for Inventories• Terms of purchases• Terms of Sales• Calculation of Net Profit• Closing Entries
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• Cost– Sacrifice made to achieve a particular purpose measured by the
resources given up.
• Product cost– A cost assigned to goods that were either purchased or manufactured
for resale purpose
• Cost of goods sold– In the period of sale, the product costs are recognized as an
expense called cost of goods sold
• Period cost– Costs are identified with the period of time in which they are incurred.
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Manufacturing Costs– Direct Material• Raw Material, can be traced out in finished products
– Direct Labor• Salaries, wages, fringe benefits for people directly
working on production
–Manufacturing Overheads• Indirect material
– Insignificant to trace i.e. Cost of drill bits, glue, nails,
• indirect labor – Deptt supervisors, security guards etc
• and other manufacturing overheads. – Depreciation of plant and machinery, property taxes,
insurance, electricity, gas etc.
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Cost of Goods Manufactured• Direct Material
– Raw material inventory, 1st January 500– Add – Material Purchased
1000– Raw Material available for use 1500– Deduct- Raw-material inventory, dec 31 200– Raw Material used 1300
• Direct Labor 1000
• Prime Cost2300
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Cost of Goods Manufactured
• Prime Cost 2300• Manufacturing overheads
– Indirect Material 200– Indirect Labor 200– Depreciation on factory 50– Depreciation on equipment 10– Utilities 20– Insurance 20– Total manufacturing overheads 500
Total manufacturing costs 2800
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Cost of Goods Manufactured• Direct Material
– Raw material inventory, 1st January 500– Add – Material Purchased 1000– Raw Material available for use 1500– Deduct- Raw-material inventory, dec 31 200– Raw Material used 1300
• Direct Labor 1000• Manufacturing overheads
– Indirect Material 200– Indirect Labor 200– Depreciation on factory 50– Depreciation on equipment 10– Utilities 20– Insurance 20– Total manufacturing overheads 500– Total manufacturing costs 2800
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• Prime Cost
• Conversion Cost
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Cost of Goods Manufactured (con`t)
• Total manufacturing costs 2800• Add work in process inventory, Jan 01 500• Sub total 3300• Deduct, work in process inventory, dec, 31 300• Cost of goods manufactured 3000
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Cost of Goods Sold
• Finished Goods inventory Jan 01, 1000• Add cost of goods manufactured 3000• Cost of goods available for sale 4000
• Deduct finished goods inventory Dec 31 500• Cost of Goods Sold 3500
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Manufacturing Cost Flows
Direct Material
Direct Labor
Manufacturing Overheads
Work in Process Finished Goods inventory
Cost of Goods Sold
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Journal Entries
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Journal Entries
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Income Statement• Sales Revenue 10000• Less Cost of Goods Sold 3500• Gross profit 6500• Operating Cost:
– Selling General Administration Expenses 100– Research and Development Expenses 50– Interest Expenses of financial assets 50– Other operating expenses 20
• Total Operating cost 220• Operating profit 6280• Less other interest expenses 40• Add other interest income 30• Profit before taxes 6270• Provision for income tax 70• Net Income 6200
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Income Statement• Sales Revenue 1000• Less Cost of Goods Sold 500• Gross profit 500• Operating Cost:• Selling General Administration Expenses 100• Operating profit 400• Less other interest expenses 40• Profit before taxes 360• Provision for income tax 70• Less Minority interest 10• Net Income 280
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Income Statement• Interest Income 1000• Interest Expenses 500• Net Interest Income 500
– Fees and Commission Income 500– Fees and Commission Expenses 200– Net Trading Income 50– Other operating income 50
• Total Non Interest Income 400• Operating Income 900
– Staff Cost 400– Premises Cost 100– General Administrative Expenses 50– Depreciation and amortization 50
• Operating Expenses 600• Operating profit before impairment losses and taxation 300
– impairment losses and taxation 50
• Profit before taxation 250– Taxation 50
• Profit for the year 200
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Lecture Overview
• Cost, Product Cost, Period Cost• Components of Manufacturing Products• Cost of Good Manufactured• Cost of Goods Sold• Manufacturing Cost Flows• Income Statements
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End of Lecture 24