Chapter

3
Manufacturing Operation

Manufacturing Accounting Cycle

Section Objectives
1. Compare the activities prevalent to
merchandising and manufacturing entities.
2. Identify the element of manufacturing cost.
3. List of manufacturing inventory account.
4. Journalize transaction in manufacturing
operation.
5. Prepare FS and complete accounting cycle
for manufacturing operation.
McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
 Comparing Merchandising to Manufacturing
 Merchandising and Manufacturing earns revenue by
selling goods.

 Merchandising buys goods for resale.

 Manufacturing buys raw materials and process them

into finished goods for sale.

19-2
Service to Merchandising to Manufacturing

19-3
Service to Merchandising to Manufacturing

19-4
 Elements of Manufacturing Cost
 Direct materials – These materials become a physical
part of the finished product.
 Direct Labor – It is the compensation of employee or
workers who physically convert raw materials into
finished product.
 Manufacturing Overhead
 Indirect materials – materials that was used in production
but not physically seen in the finished product.
 Indirect Labor – compensation to employee or worker who
have not direct involvement in the conversion of raw
material to finished goods.
 Other indirect manufacturing cost
19-5
Manufacturing Inventory Account
 Raw Materials (Factory Supplies)
 Work in Process
 Finished Goods

 Merchandise Inventory

19-6
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