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BUSI 1003 (12)
Chapter 10

Chapter 10

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BUSI 1003
Patti Proulx

Chapter 10 - Accounting Systems for Manufacturing Businesses ● Manufacturing firms earn revenue from manufacturing and selling finished goods. ● Divide inventories on the balance sheet into Raw Materials, Work In Process, Finished Goods ● Two broad categories of Manufacturing Costs: ○ Direct – cost can be directly and conveniently traced to final product ■ Direct Labour ■ Direct Materials ○ Indirect - cost can not be directly traced to final product or it may be insignificant or inconvenient to do so ■ Manufacturing Overhead ● Electricity ● Insurance ● Plant Manager’s salary ● Maintenance & Repairs on Equipment ● Depreciation on Machinery ● Rent ● Period Cost (all non-manufacturing costs) ○ Expensed on the income statement in the period that they are incurred. ○ Includes all selling & administrative expenses ■ Selling costs – Example: advertising, travel, shipping, sales commissions, ■ Administrative costs – Example: Accounting, IT, executive compensation, ● Product Cost (all manufacturing costs) ○ Direct Materials, Direct Labour & Overhead ○ Charged to inventory accounts until product is sold ● Cost Accounting Systems - Used to establish prices, control operations, and give price data ○ Job order cost systems – Often used by companies that make custom products for customers or batches of similar products. ○ Process cost systems – make units of product that are indistinguishable from each other
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