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Chapter 2 Notes - COSTFLOWSEXAMPLE EXAMPLE: Directlabor...

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COST CLASSIFICATIONS IN MANUFACTURING COMPANIES
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COST FLOWS IN A MANUFACTURING COMPANY
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COST FLOWS EXAMPLE EXAMPLE: Ryarder Company incurred the following costs last month: Purchases of raw materials ........... $200,000 Direct labor .................................... $270,000 Manufacturing overhead: Indirect materials ........................ $   5,000 Indirect labor ............................... 100,000 Utilities, factory ........................... 80,000 Property taxes, factory ................ 36,000 Insurance, factory ....................... 9,000 Equipment rental ......................... 70,000 Depreciation, factory ...................   120,000     Total manufacturing overhead ....... $420,000 But:
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• Some of the goods sold this month were produced in previous months. • Some of the costs listed above were incurred to make goods that were  not sold this month. Therefore: • Cost of goods sold does not equal the sum of the above costs. • We need to determine the values of the various inventories.
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COST FLOWS EXAMPLE (continued) Additional data for Ryarder Company: Raw materials inventory: Beginning raw materials inventory ............... $10,000 Purchases of raw materials .......................... $200,000 Ending raw materials inventory .................... $30,000 Raw materials used in production ................ ?    Work in process inventory: Beginning work in process inventory ............ $40,000 Total manufacturing costs ............................ ?    Ending work in process inventory ................ $60,000 Cost of goods manufactured (i.e., finished). ?    Finished goods inventory: Beginning finished goods inventory ............. $130,000 Cost of goods manufactured (i.e., finished). ?    Ending finished goods inventory .................. $80,000 Cost of goods sold ....................................... ?   
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INVENTORY FLOWS Basic Equation for Inventory Accounts: or
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COST FLOWS EXAMPLE (continued) Computation of raw materials used in production Beginning raw materials inventory .................. $  10,000 + Purchases of raw materials ............................ 200,000 Ending raw materials inventory .......................       30,000     = Raw materials used in production ................... $180,000 Computation of total manufacturing cost Raw materials used in production ................... $180,000 + Direct labor ..................................................... 270,000 + Manufacturing overhead .................................   420,000     = Total manufacturing cost ................................. $870,000 Computation of cost of goods manufactured Beginning work in process inventory .............. $  40,000 + Total manufacturing cost ................................. 870,000 Ending work in process inventory ...................       60,000     = Cost of goods manufactured (i.e., finished) .... $850,000 Computation of cost of goods sold Beginning finished goods inventory ................ $130,000 + Cost of goods manufactured (i.e., finished) .... 850,000 Ending finished goods inventory .....................
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