CH2 Flashcards
Types of Companies:
Manufacturing
Take raw materials (RM) and produce new products from them.
Types of Companies:
Merchandising
Retail and wholesale merchandising companies sell products that someone else has manufactured.
Types of Companies:
Service
Provide a service such as airlines, hospitals, repair shops, law firms, CPA firms.
Manufacturing Production Process – “Traditional” Environment
Materials are purchased and products are made “in anticipation” of customer demand
Begins with projections based on past experience and “forecasts” so products are “pushed” through the process
Inventories serve as “buffers” in case of unexpected demand for products or unexpected problems in production
Generally 3 inventory accounts exist in a traditional environment:
Raw Materials
Work in Process
Finished Goods
Lean production is focused on
optimizing the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers;
Continuous Improvement
Lean production is also focused on creating processes that need less:
human effort,
space,
capital (equipment, facilities, inventory),
time and cost to make products (and services)
“Just In Time” (JIT)
Materials are purchased and products are made “just in time” to meet customer demand
Process begins with customer order and products are “pulled” through the process
Manufacturing Costs are?
Costs “inside” the factory or plant
Associated with making the product
Non-manufacturing Costs are?
Costs “outside” the plant or factory
Typically called Selling, General and Administrative (SG&A)
Direct Materials (DM)
Various materials that can be directly and conveniently traced to a product.
Direct Labor (DL)
Direct Labor is the cost (including fringe benefits) of all employees who work directly on the product being made or service being
Manufacturing Overhead (MOH)
Indirect Materials such as welding material, glue, screws, etc.
Indirect Labor such as supervisors, factory
Direct Costs vs Indirect Cost
Direct Costs are conveniently traceable and Indirects are NOT Conveniently traceable
Non-manufacturing Costs
are not directly incurred in the production of products.
Typically are Selling, General and Administrative (S,G&A) costs.
ex.
insurance expense
Taxes
Rent expense
Advertising Cost
Product Costs
“Inventoriable” costs
Direct materials, direct labor, overhead costs
Stay with product until the product is sold
Included in one of three inventory accounts
Period Cost
Generally … non-manufacturing costs
“Expensed” in the period incurred
Period Costs that are NON-MFG are:
“Expensed” in the period incurred
Included in selling, general and administrative costs (SG&A)
The Cost of Goods Manufactured (COGM) is:
… the cost of the goods that we finish
… and take out of WIP inventory
… and move to Finished Goods inventory.
Cost of Goods Manufactured Equation
Beginning RM Inventory \+ RM Purchases =Cost of RM Available for Use - Ending RM Inventory =RM Used \+ DL \+ MOH \+ Beginning WIP Inventory - Ending WIP Inventory =Cost of Goods Manufactured
Cost of Goods Sold (COGS) formula
Beginning FG Inventory \+ Cost of Goods Manufactured Goods available for sale - Ending FG Inventory Cost of Goods Sold
