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Slide 2 An Introduction to Management Accounting Emphasizing the flow of costs through factory. Richard E. McDermott Slide 3 Understanding the Factory Manufacturing costs Total manufacturing costs Cost of goods manufactured Slide 4 McDermott Manufacturing Administration Marketing Raw Material Storeroom Factory Supervisor Finished Goods Storeroom Slide 5 Some Basic Formulas Beginning inventory + transferred in - ending inventory = transferred out BI + TI EI = TO Generic TermsRaw Materials Storeroom Terms Factory TermsFinished Goods Storeroom Terms Beginning inventoryBeginning inventory raw materials Beginning inventory work-in-process Beginning inventory finished goods Transferred inPurchasesManufacturing costs added Cost of goods manufactured Ending inventoryEnding inventory raw materials Ending inventory work- in-process Ending inventory finished goods Transferred outDirect materials or indirect materials transferred to the factory or to overhead Cost of goods manufactured Cost of goods sold Slide 6 Direct Costs Slide 7 Indirect Costs Overhead Costs Administrative and Marketing Indirect Costs Slide 8 Other Terms Manufacturing costs added Total manufacturing costs Cost of goods manufactured Slide 9 McDermott Manufacturing Administration $13,500 Marketing $6,000 Raw Material Storeroom BI = $12,000 TI = $30,000 EI = $27,000 Factory BI = $50,000 TI = overhead applied of $9,000, direct labor of $18,000, and direct materials of $15,000 EI = $32,000 Factory Supervisor $9,500 Direct Costs Indirect Costs Overhead Costs Finished Goods Storeroom BI = $17,000 TI = $60,000 ED = $12,000 Key BI = Beginning inventory TI = Transferred in EI = Ending inventory TO = Transferred out Slide 10 Calculating the Cost of Raw Materials Transferred Out Of the Raw Material Storeroom Beginning inventory raw materials $12,000 Raw materials purchased$30,000 Ending inventory raw materials $27,000 BI + TI EI = TO $12,000 + $30,000 - $27,000 = $15,000 Slide 11 Calculating the Cost of Goods Manufactured Beginning inventory work in process $50,000 Manufacturing costs added Direct labor Direct materials Factory overhead applied $18,000 $15,000 $9000 Ending inventory work in process $32,000 $50,000 beginning inventory work in process + a total of $42,000 of manufacturing costs added $-32,000 and ending inventory = $60,000 cost of goods manufactured. Slide 12 Calculating the Cost of Goods Sold Beginning inventory finished goods $17,000 Cost of goods manufactured-- (Transferred in) $60,000 Ending inventory finished goods $12,000 Beginning inventory of finished goods equaling $17,000 + cost of goods manufactured of $60,000 - ending inventory finished goods of $12,000 = $65,000 cost of goods sold before adjustment for over or under applied overhead. Over or under applied overhead? Slide 13 The End