Asked by Azreen Azahari on May 20, 2024
Verified
Assume you have just taken a position as controller for a new company that manufactures and sells wrought iron wall hangings. Although the founder of the company who is the president and CEO is a great artisan she has very limited knowledge of accounting.
Instructions
To help your new boss better understand accounting for a manufacturing organization prepare a response to her in which you: (1) identify (2) describe and (3) provide examples of the three manufacturing costs and the three inventory accounts used in accounting for a manufacturing company.
Manufacturing Costs
Expenses directly associated with the production of goods, including raw materials, labor, and overhead costs.
Inventory Accounts
Accounts used to track the quantity and value of goods a company has in stock, including raw materials, work-in-progress, and finished goods.
Controller
A financial manager responsible for the accounting operations of a company, including financial report generation and data integrity.
- Discern and allocate costs into the classifications of direct materials, direct labor, or manufacturing overhead.
- Prepare and interpret manufacturing cost data and its impact on inventory accounts and income statements.
Verified Answer
The three inventory accounts are: raw materials work in process and finished goods. Raw materials inventory represents the cost of the materials and parts that are to be used in the manufacturing process. The iron purchased to make the wall hangings would be considered raw materials until the time it was put into production. Work in process is the cost applicable to units that have been started into production but are only partially complete. Wall hangings on the assembly line that are in various stages of completion would be work in process. The finished goods inventory represents the cost of completed goods that have not been sold. The cost of wall hangings that are completed but have not been sold would be finished goods.
Learning Objectives
- Discern and allocate costs into the classifications of direct materials, direct labor, or manufacturing overhead.
- Prepare and interpret manufacturing cost data and its impact on inventory accounts and income statements.
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