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Cost Flows in Manufacturing

The project will demonstrate your comprehension of managerial accounting and your
ability to effectively communicate in writing.

The purpose of this Project is to give you hands-on experience in a manufacturing
process - for example baking a cake. All the key elements of direct materials, labor
and applied manufacturing overhead are part of baking cakes, even if we do not think
of this process as manufacturing. The basic flow of costs through a manufacturing
process is critical to understanding and using managerial accounting information,
but it is a process that seems foreign to many students. Baking cakes is a much more
understandable process, and can help you internalize this basic accounting concept
along with internalizing some cake!

Content Goals
*Identify the cost flows in manufacturing (See pg 102, 116, 152 and 153)

*Analyze and report process costs

Process Goals
*Use prior knowledge/experience to master new concepts

Basic Requirements
The Project does not have a minimum or maximum page requirement; however, all
outputs (see below) MUST be completed entirely. The paper MUST be typed using, 8 ½
x 11 paper and doubled space with 1 margins on all four sides of each page. Indent
5 spaces to indicate a new paragraph. Your paper MUST have a title page. The maximum
font size is 12. Number every page, beginning with page 2, at the bottom right of
the page.

Summary Requirements
For starters, you will need to find your favorite cake or cookie recipe. Using this
recipe, you will determine the basic stages and requirements for cake or cookie
manufacturing. You will use a flow chart to illustrate the sequential or parallel
cake/cookie manufacturing process. You will also report on the flow of costs in the
manufacturing process by completing the Schedule of Cost of Goods Sold and the
Schedule of Cost of Goods Manufactured. To complete this activity may mean taking a
trip to the local grocery store to gather reasonable costs.
You have $10,000 budget per month. You are required to spend as much as possible.
The cost of rent is $1,000 per month. Please make-up your own amounts for utilities
and other business expenses. Make certain that you include all reasonable costs
that would be likely incurred in this manufacturing process.

Activity Outcome
When you have completed the manufacturing activity, you should have a better
comprehension of the three key components of manufacturing costs (direct material,
direct labor, applied manufacturing overhead) and how these costs flow through a
manufacturing process.

Activity Outputs
· Provide an Overview of the Business
Give a description of your company, location, products, and staff. Discuss the
financial data that will be presented in the Schedules, the Income Statement, and
the flow charts. Discuss the time period (monthly, quarterly, annually) for which
these data are being reported.

· Provide the Manufacturing Process Flow
Prepare a flow chart illustrating the various stages of your manufacturing process.
It would be helpful to report which costs are added at each stage of the process.

· Provide the Recipe
The recipe should report the number of units it is expected to yield. The
ingredients and units of measure reported in the recipe should tie directly to the
ingredients and units of measures reported on the Raw Materials Schedule. For
example, if the recipe states to yield 100 cookies, 2 cups of milk are required and
the Raw Materials Schedule states that it will produce 1000 cookies, then I expect
to see 20 cups of milk reported on the Raw Materials Schedule. That is, 2 cups of
milk to produce 100 cookies then 20 cups of milk to produce 1000 cookies.

· Prepare a Raw Materials Schedule
Quantity (for eg, to produce 1000units)DescriptionUnit CostTotal Cost
20 Milk$1.00$20.00
The quantity should tie to the recipe. Thus, for example, to yield 100 units, the
recipe requires 2 cups of milk and thus requires 20 cups of milk to produce 1000
units.

· Prepare a Direct Labor Schedule
QuantityDescriptionUnit CostTotal Cost
HoursPosition
This is estimated direct labor costs and hours for a period (month, quarter, year).

· Prepare an Overhead Schedule
These would be estimated manufacturing overhead costs for a period (month, quarter,
year).

· Calculate the Manufacturing Overhead Rate

· Prepare the Schedule of Cost of Goods Manufactured
I advise that you use Template P3-19.

Problem 03-19

Manufacturing overhead cost
Direct labor cost
Overhead rate

Actual manufacturing overhead costs:
Insurance, factory
Depreciation of equipment
Indirect labor
Property taxes
Maintenance
Rent, building
Total actual costs
Applied manufacturing overhead costs
Underapplied overhead

PACIFIC MANUFACTURING COMPANY
Schedule of Cost of Goods Manufactured

Direct materials:
Raw materials inventory, beginning
Add purchases of raw materials
Total raw materials available
Deduct raw materials inventory, ending
Raw materials used in production
Direct labor
Manufacturing overhead applied to work in process
Total manufacturing costs
Add: Work in process, beginning

Deduct: Work in process, ending
Cost of goods manufactured

Cost of goods sold:
Finished goods inventory, beginning
Add: Cost of goods manufactured
Goods available for sale
Deduct: Finished goods inventory, ending
Cost of goods sold

Direct materials
Direct labor
Overhead applied
Cost to manufacture
Price to customer

The amount of overhead cost in Work in Process would be:
Direct labor cost
Overhead rate
Work in process overhead cost

The amount of direct materials cost in Work in Process would be:
Total ending work in process
Deduct:
Direct labor
Manufacturing overhead
Direct materials

The completed schedule of costs in Work in Process would be:
Direct materials
Direct labor
Manufacturing overhead
Work in process inventory

Solution Preview

he project will demonstrate your comprehension of managerial accounting and your
ability to effectively communicate in writing.

The purpose of this Project is to give you hands-on experience in a manufacturing
process - for example baking a cake. All the key elements of direct materials, labor
and applied manufacturing overhead are part of baking cakes, even if we do not think
of this process as manufacturing. The basic flow of costs through a manufacturing
process is critical to understanding and using managerial accounting information,
but it is a process that seems foreign to many students. Baking cakes is a much more
understandable process, and can help you internalize this basic accounting concept
along with internalizing some cake!

Content Goals
*Identify the cost flows in manufacturing (See pg 102, 116, 152 and 153)

*Analyze and report process costs

Process Goals
*Use prior knowledge/experience to master new concepts

Basic Requirements
The Project does not have a minimum or maximum page requirement; however, all
outputs (see below) MUST be completed entirely. The paper MUST be typed using, 8 ½
x 11 paper and doubled space with 1 margins on all four sides of each page. Indent
5 spaces to indicate a new paragraph. Your paper MUST have a title page. The maximum
font size is 12. Number every page, beginning with page 2, at the bottom right of
the page.

Summary Requirements
For starters, you will need to find your favorite cake or cookie recipe. Using this
recipe, you will determine the basic stages and ...

Solution Summary

This identify the cost flows in manufacturing

$2.19