Manufacturing organization

Definition

A manufacturing organization is a business entity that uses raw materials, labor, and equipment to produce finished goods. These goods are then sold to customers or other businesses.

5 Must Know Facts For Your Next Test

1. Manufacturing organizations typically have three inventory accounts: Raw Materials, Work in Progress (WIP), and Finished Goods.
2. Costs in manufacturing organizations are categorized into direct materials, direct labor, and manufacturing overhead.
3. The production process involves various stages such as procurement, production planning, and quality control.
4. Cost of Goods Manufactured (COGM) is a key metric that includes all costs incurred to manufacture products during a specific period.
5. Manufacturing organizations often use job costing or process costing systems to allocate costs to products.

Review Questions

• What are the three types of inventory accounts in a manufacturing organization?
• How are costs categorized in a manufacturing organization?
• What does Cost of Goods Manufactured (COGM) include?

Related terms

Merchandising Organization: A business entity that purchases finished goods for resale to customers.

Service Organization: A business entity that provides intangible services rather than physical products.

Job Costing System: A cost allocation method used when products are manufactured based on specific customer orders or jobs.