For a manufacturer, there are three inventory accounts that appear on the balanc

Question

For a manufacturer, there are three inventory accounts that appear on the balance sheet. Name and describe each of these inventory accounts.

On the income statement of a merchandising company, the cost of goods sold would be calculated as: Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold. How would this formula be expressed in the case of a manufacturer?

A major challenge of Chapter 18 is the Cost of Goods Manufactured (COGM) statement. You should look at a COGM statement (try the one I posted as “COGM Example” with color emphasis in the Chapter 18 materials). You can learn the COGM (and COGS) calculations most efficiently by breaking down the statement in smaller formulas. a. How is the cost of “direct materials used” calculated? b. How is “total manufacturing cost incurred” calculated? c. How is “cost of goods manufactured” calculated? d. How is “cost of goods sold” calculated on the income statement? Note: in the COGM Example, you can see multiple views of the same statement by clicking on the blue links at the top. Look for DM Used, TMC Incurred, COGM Calc, and COGS links.

Explanation / Answer

         1 In Manufacturing ; COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured (COGM ) - Closing Finished Goods Inventory a. Direct Material Used Beginning Direct Material Inventory Add : Cost of Direct Material Purchased Less : Ending Direct Material Inventory = Direct Material Used Total Manufacturing Cost Incurred = n Direct Material Used o Plus Direct Labor Plus Manufacturing Overhead 1. Indirect Material 2. Indirect Labor 3. Depreciation Factory Buliding & Equipment 4. Factory Rent & Insurance 5. Property Tax Factory p Total Manufacturing Overhead Total Manufacturing Cost Incurred =n+o+p c Cost of Goods Manufactured Total Manufacturing Cost Incurred Plus: Beginning Work in Process Inventory Less: Ending Work in Process Inventory =Cost Of Goods Manufactured d Cost Of Goods Sold Beginning Finished Goods Inventory Plus : Cost Of Goods Manufactured Less: Ending Finished Goods Inventory   = Cost Of Goods Sold

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