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Principles of Accounting II. Process Manufacturing. Lesson #8. By Laurie L. Swanson. Click the button below to navigate to the next slide. Process Manufacturing. Process manufacturing involves mass production of homogenous goods in a continuous flow of steps (known as processes ).

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Process manufacturing

PrinciplesofAccounting II

Process Manufacturing

Lesson #8

By Laurie L. Swanson

Click the button below to navigate to the next slide.


Process manufacturing1
Process Manufacturing

Process manufacturing involves mass production of homogenous goods in a continuous flow of steps (known as processes).

Process cost accounting is used for process manufacturing systems.


More about process manufacturing
More About Process Manufacturing

In process manufacturing, goods are produced by moving through a series of steps or departments. In each step (or department), the product receives materials and/or labor and consumes overhead. The goods are considered in process until they pass through the final department and receive the last of their materials and/or labor. The goods are then transferred out of production as finished goods.

Goods are continuously moving through the production process and being transferred to finished goods. Likewise, goods in process continuously accumulate costs.


Product costs
Product Costs

Unlike job order manufacturing, in process manufacturing, large batches of standardized products are produced in a continuous sequence. Tracking the cost of a single item would be cumbersome, inefficient, and costly. Therefore, in process manufacturing, costs are accumulated by department (or process), not by product.


Manufacturing costs
Manufacturing Costs

There are numerous costs involved in the production (manufacture) of goods and it is important that all manufacturing costs be accounted for accurately and completely.

Recall that costs can be classified by function as either product (costs necessary to produce a product) or period (costs which apply to running the overall business).

When accounting for manufacturing costs, only product costs are considered.


Product costs1
Product Costs

The three components of product costs are:

  • Direct Materials – raw materials which can be easily and efficiently traced to a specific process

  • Direct Labor – labor applied directly to a specific process

  • Overhead – all product costs which are neither direct materials nor direct labor


Watch
Watch

View this classic clip on YouTube (1:46) to get a sense of process manufacturing.


Learn
Learn

While this is a fun clip to watch, it actually helps demonstrate some of the concepts of process manufacturing.

What did you notice that relates to process manufacturing systems?


Learn1
Learn

Lucy and Ethel were working in the Wrapping Department. Did you notice the mention of other departments?

Which ones were mentioned by name?

Boxing Department

Packing Department


Learn2
Learn

Did you see that each product (candy) was the same and the process was applied in a continuous manner (conveyer belt)?

Did you see that the partially completed candy received additional material (wrapping paper) and labor (such as it was) in Lucy and Ethel’s department?


Learn3
Learn

What costs were incurred in the wrapping department?

Direct materials – candy wrappers

Direct labor – Lucy and Ethel

Overhead – electricy, equipment depreciation, production supervisor, et al


Learn4
Learn

What do you think happened to the candy when it left the wrapping department?

It went to the packing department where it would receive the final materials and labor. The candy would then be considered finished goods.


Process manufacturing2

End of

Lesson #8

Process Manufacturing

Overview of


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