Question

1. 1: Identify the three inventory accounts maintained by manufacturing firms and explain the purpose of each - what value do they provide an organization?
2. #2: Identify and explain the three major categories used to account for manufacturing costs as if none of us have read the chapter - in other words be detailed?

Answer 1

3 inventory accounts maintained by manufacturing firm

· Raw material

· Work in process

· Finished goods

Raw material inventory:

The purpose of raw material inventory is to ensure there is continuous production and meet the demand of finished goods. Raw material inventory is usually carried as per safety stock requirements in order to ensure there is not much money blocked in working capital

Work in process:

Since manufacturing happens in a process there will be some part of the inventory in work in process at end of the period. The work in process varies from firm to firm depending on the manufacturing process

Finished goods

The finished goods inventory is held by the firm to meet the demand in the market. All firms carry finished goods inventory in certain days to ensure there is no stock out and loss of sales in market due to non availability of finished goods

2. Three major categories used to be account of remanufacturing cost

· Direct material

· Direct Labor

· Manufacturing overhead

Direct material is the cost which is directly used in production of the finished goods. For example raw materials and packing materials needed in production. Usually Direct material is inventorized. So there will be beginning and ending inventory also along with purchases during the period. The issue of direct material to the work in process is made on the basis of requisition slip from the production department.

Direct Labor is the cost which is directly engaged in production of finished goods. They are the labor cost like assembly workers and packing workers who are directly engaged in the production floor. There are paid on hourly basis

Manufacturing overheads are the costs which facilitate the production of the finished goods. They compose of indirect material, indirect labor and other overheads costs. Indirect material is the material which is insignificant and not material. Indirect labor helps in producing finished goods . Manufacturing overheads are the costs incurred in the plant which facilitate production for example

· Depreciation on production equipment

· Plant property taxes

· Plant rent

· Plant insurance

· Plant utilities

· Plant maintenance