Manufacturing

Definition

Manufacturing is the process of converting raw materials into finished products through the use of labor, machinery, and chemical processes. It involves various stages such as production planning, quality control, and inventory management to ensure efficient production operations.

5 Must Know Facts For Your Next Test

1. Manufacturing companies need to track direct materials, direct labor, and manufacturing overhead costs.
2. Work in Progress (WIP) refers to partially completed goods that are still in the production process.
3. Finished Goods Inventory consists of completed products ready for sale but not yet sold.
4. Cost of Goods Manufactured (COGM) is calculated to determine the total production cost of goods completed during a specific period.
5. The manufacturing process can be categorized into job order costing or process costing depending on the nature of production.

Review Questions

• What are the three major categories of costs tracked by manufacturing companies?
• How do you differentiate between Work in Progress (WIP) and Finished Goods Inventory?
• What is Cost of Goods Manufactured (COGM), and why is it important?

Related terms

Direct Materials: Raw materials that are directly traceable to the finished product.

Direct Labor: Labor costs that can be directly attributed to the production of specific goods.

Manufacturing Overhead: All indirect costs associated with manufacturing, including utilities, maintenance, and depreciation.