Module 8: Introduction to Manufacturing Operation

(New Account Titles and Financial Statements)

Merchandising vs. Manufacturing

Merchandising Manufacturing
General buys products at a make products
Concept low price and sell Classification of Cost
at a higher price. Prime Cost – direct product costs ( DM + DL )
Conversion Cost - manufacturing costs needed to
As to flow Purchases – Sells Purchases Raw convert the direct materials into products (DL + OH)
of Goods Materials – Process Product Cost – Costs that become part of the cost
Operations – Sells Finished of goods manufactured (DM + DL + OH)
Goods Period Cost –  all costs other than product costs
As to Sales – CGS = Gross Sales – CGS = Gross
Costing Profit Profit Income Statement – Manufacturing

CGS = @ Cost of Costs: Direct Sales XX

Purchase Materials + Direct Cost of Goods Sold:
Labor + Direct Materials
Manufacturing Raw Materials, beg XX
Overhead Purchases XX
As to Inventory Raw Materials Raw Materials, end (XX)
Inventory Work in Process Raw Materials Used XX
Finished Goods Direct Labor XX
Manufacturing Overhead
// New Account Titles //
Indirect Materials XX
3 Types of Inventory
Indirect Labor XX
1. Raw Materials - the basic materials that a
Other MOH XX XX
manufacturing company buys from its suppliers
Total Manufacturing Cost XX
and that are used by the former to convert
Work In Process, beg XX
them into the final products by applying a set of
Total Cost of Goods in Process XX
manufacturing processes
Work In Process, end (XX)
2. Work in Process - the raw materials that have
Cost of Goods Manufactured XX
been taken out of the raw materials store and
Finished Goods, Beg XX
are now undergoing the process of their
Cost of Goods Available for Sale XX
conversion into the final products.
Finished Goods, End (XX)
3. Finished Goods - the final products obtained
Cost of Goods Sold (XX)
after the application of the manufacturing
Gross Profit XX
processes on the raw materials and the semi-
finished goods
// Costs
a. Direct Material - cost of all materials that are an
integral part of a finished product and that have
a physical presence that is readily traced to that
finished product.
b. Direct Labor – consists of gross wages paid to
those who physically and directly work on the
goods being produced.
c. Manufacturing Overhead – is a multitude of
different costs including indirect labor and
indirect materials.

“Believe before achieve.” - Jezreel Joy L. Torregosa, Soon to be CPA