Accounting for manufacturing
* Manufacturing business is more complex than retailing because it involve production as well as selling and administration * The emphasis is on the gathering of costs and the recording of expenses. Cost and decision making
* Inventory valuation, the cost of manufacturing finished goods and goods still in production needs to be determined so that these costs can be used in preparing the income statement and balance sheet. * Profit determination, calculation of cost of sales is not possible without first determining the cost of inventory. Goods need to be determined before a price can be set. The cost of manufacturing must be covered and there must be sufficient mark up on cost to cover other expenses and to provide a profit. * Management decision making application, include pricing and planning. Costs of alternative methods of production are useful in planning the most efficient method of production. Costs of alternative options for a product suggested by market research are necessary to determine whether it is profitable. Inventories – manufacturing and non - manufacturing
* Manufacturing and non - manufacturing business entities engage in many of the same selling and administrative activities such as marketing, granting credit, clerical work and general management. * Valuation of a manufacturing entity’s inventories introduces some accounting practices that are different from those of a service entity that does not have any inventory or a retail entity that buys finished good ready for resale. * 3 different inventory account, (1) raw materials – cost of the materials and parts that have been purchased to make products, for example the casing of a phone. (2) work in process – inventory that is partly completed but requires further processing before it can be sold. (3) finished goods – total cost assigned during the production process to alk products fully manufactured and ready for sale....
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