Manufacturing company direct material purchases

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Manufacturing Company Direct Material Purchases Finished Goods Inventory Sales - Cost of Goods Sold (Expenses) - Selling Expenses and Administrative Expenses Period Costs Gross Margin Operating Income Product (Inventoriable) Costs Expiration Work-in- Process Inventory Direct Material Inventory Direct Labor Indirect Production
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Balance Sheet Presentation Cash $ 4,000 Receivables 25,000 Subtotal $29,000 Finished goods 32,000 Work in process 22,000 Direct material 23,000 Total inventories $77,000 Other current assets 1,000 Total current assets $107,000 Manufacturer Cash $ 4,000 Receivables 25,000 Merchandise inventory 77,000 Other current assets 1,000 Total current assets $107,0 00 Retailer or Wholesaler
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Inventory Sections of Balance Sheets Raw materials $165 Work in process 33 Finished goods 692 Total $ 890 Cisco Systems, Inc . Manufacturer Merchandise inventory $5,405 Costco Wholesale Corporation Retailer or Wholesaler Manufacturing inventories comprise three major categories: Merchandise inventories composed of purchase costs including freight in.
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Income Statement Presentation of Costs Direct labor Indirect manufacturing The manufacturer’s cost of goods produced and then sold is usually composed of the three major categories of cost: Direct materials The reporting of selling and administrative expenses is typically the same for manufacturing and merchandising organisations The merchandiser’s cost of goods sold is usually composed of the purchase cost of items, including freight-in, that are acquired and then resold.
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Cost of Goods Sold Section of Income Statements Beginning finished goods inventory $ 4,000 Cost of goods manufactured: Direct materials $20,000 Direct labor 12,000 Indirect production 8,000 40,000 Cost of goods available for sale 44,000 Less: Ending finished goods 8,000 Cost of goods sold $36,000 Manufacturer Beginning merchandise inventory $ 4,000 Purchases 40,000 Cost of goods available for sale 44,000 Less: Ending merchandise inventory 8,000 Cost of goods sold $36,000 Retailer or Wholesaler
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Main differences between traditional and Activity Based Costing (ABC) systems Learning Objective 7
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Traditional Costing Systems Accounting Systems that do not accumulate or report costs of individual activities or processes. They often use a single cost pool for all indirect production costs with a labor-based cost allocation base It works well with simple production process. Companies often use only one cost-allocation base, if they produce few products and the indirect production costs are small
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Traditional Costing Systems Two operating departments Assembly Large expensive machine and less employees Machine hours as an allocation base Finishing few machines and many employees labor hours as an allocation base
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Traditional Costing Systems A Company makes hundreds or thousands of different products Indirect production costs are a large percentage of total costs What is the many different products consume resources at widely varying rates?
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Activity-Based Costing system A system that first accumulates indirect resources costs for each of the activities of the area being costed, and then assign the costs of
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