Manufacturing Inventories

These flashcards cover key concepts from the lecture on manufacturing inventories, focusing on accounting practices and inventory management.

Raw Materials Account

An account that tracks the costs of the raw materials used in production, including purchases and transportation.

Work in Process (WIP) Account

An account that includes all product costs incurred during the manufacturing process that have not yet been completed.

Cost of Raw Materials Used (CORMU)

The total cost of raw materials that have been transformed into products during a period.

Specific Identification Method

A method of inventory valuation that tracks the specific cost of each individual item.

FIFO (First In, First Out) Method

An inventory valuation method where the oldest inventory items are recorded as sold first.

Proxy

A surrogate or representation that is used to estimate values in the manufacturing process, such as direct labor dollars.

Finished Goods Inventory

An account that tracks the cost of completed products ready for sale.

Weighted Average Cost Method

A method for inventory valuation that calculates the average cost of all items available for sale.

Direct vs indirect costs 

Direct: Easily traced to a product (raw materials, direct labour).

Indirect: Hard to trace; included in factory overhead (rent, depreciation, utilities, supervisor salary).

Why are some costs capitalized and others expensed immediately

Product costs (RM, DL, FOH) → Capitalized as inventory until sold.

Period costs (office, marketing, admin) → Expensed in the period incurred.

What’s in the WIP account?

All manufacturing costs added during production:

Direct materials + direct labour + applied factory overhead

Why is depreciation on production equipment treated differently from office equipment? 

Production equipment: Product cost → added to WIP (FOH).

Office equipment: Period cost → expensed immediately.

Why record depreciation at the end?

It’s non-cash and part of matching cost to revenue

What are the biggest mistakes students make in manufacturing cases?

Forgetting to include freight-in in RM.

Leaving production depreciation as an expense.

Calculating COGM before posting all FOH items.

Mixing up product vs period costs.

Ignoring goods in transit under FOB shipping point.

Nielsen’s annual salary is $48,000. 75% of her time is spent in production.

Move the production portion to WIP.

Dr WIP (DL) $36,000

Cr Wages and Salaries Expense $36,000