ACC/400 class PART I

ACC/400 class.

PART I
Part I of the simulation illustrates the flow of the product through the factory and the
corresponding flow of manufacturing costs through the accounting system.
Teaching opportunity: Discuss the basics of a job order cost system and why it is
being used in this particular manufacturing operation, as opposed to a process cost
system.
The exercise commences with the following procedures:
Set up the classroom by designating space for the RM Warehouse, the factory floor
containing two distinct departments for WIP (Cutting and Finishing), and the FG
Warehouse.
Briefly review “The Flow of Product Costs in a Manufacturing Company” handout
(see Figure 1), which presents the account entries needed throughout the
manufacturing process from the purchase of raw materials to the sale of the
products.
Figure 1 — The Flow of Product Costs in a Manufacturing Company
DL worked
CGS
Purchases of
RM
Beg Bal
– –
+
+
+
+ +
Raw Materials
Wages Payable
WIP Finished Goods CGS
Manufacturing Overhead
+
–
–
–
–
Used
Ending Bal.
Ending Bal. Ending Bal. Ending Bal.
(Labor wages
paid)
Labor worked
CGS
Beg. Bal when sold-
Cost of Goods
Manufactured
when completed-
Cost of Goods
Manufactured
Beg. Bal.
DM Used
Applied O/H
Applied O/H
Actual O/H
indirect materials
used
indirect labor
worked
other actual O/H
Over/Under-applied O/H
The “T-accounts for Assume Table is Finished and Sold” handout (see Figure 2)
should be copied on the board or placed on an overhead projector so that
throughout the manufacture of the table, the instructor can demonstrate how the
movement of the product costs through the accounting records mirrors the movement
of the product through the factory. All T-accounts will have $0 beginning balances.
Figure 2 — T-accounts for Assume Table is Finished and Sold
Manuf Overhead
Finished Goods
Actual Applied
+
Wages Payable
+ –
WIP
+ –
CGS
– + –
Raw
+ –
At this time, the instructor begins to walk the students through the transactions and
transitions that encompass the manufacturing process. The first transaction involves the purchase
of raw materials. When purchased, raw materials (both direct materials and indirect materials) are
delivered to the raw materials inventory warehouse where they are stored until taken out for
production. Assume the company purchases $4,000 of raw materials and places all direct and
indirect materials (wood, glass, stain, felt, etc.) in the RM Warehouse. The instructor updates the
Raw Materials T-account on the board by adding $4,000 for the purchase from outside suppliers.
Next, the instructor explains the direct labor costs which involve two workers – one in the
Cutting Department and the other in the Finishing Department. The job of DL worker A (Cutting
Department) is to cut the wood and glass (i.e., sheet protector) for the table. DL worker A fills in
his time ticket (see Figure 3), indicating he is starting work at 8:00 AM on Job #1. See Time Ticket
#1 below.