Cost of Goods Sold Formula - Manufacturer
Tell the WIP Story
Once things are in production, we need to do things to convert them to a usable product. In doing this we incur "Manufacturing Costs" The Direct Materials from the last problem (Materials Used in Production), Direct Labor, and Direct OH make up this Manufacturing Cost We then subtract Ending WIP Inventory What we had + total manufacturing costs - what we ended with = Cost of Goods Manufactured
Manufacturing Costs
Part of WIP 1.Materials Used in Production 2.Direct Labor 3.Materials Used in Production
Prime Cost
1. Direct Materials (Manu Cost) 2. Direct Labor Cost
Tell the Raw Materials Story?
We had an initial amount of raw materials. We purchased more. Some were requisitioned by production. What we had + what we bought - what we ended with = the materials we used in production (direct materials)
Materials Used in Production
Beginning Raw Materials Inventory [+] Materials Purchased [-] Ending Raw Materials Inventory ------------------------- Materials Used in Production
Cost of Goods Manufactured
Beginning WIP Inventory [+] Manufacturing Costs: =>Materials Used in Production => Direct Labor => Manufacturing OH ------------------------- Total Manufacturing Cost [-] Ending WIP Inventory -------------------------- Cost of Goods Manufactured
Cost of Goods Sold
Beginning Finished Goods Inventory [+] Cost of Goods Manufactured [-] Ending Inventory ----------------------- Cost of Goods Sold
General Process
Beginning Inventory [+] Something added to the account [-] Ending Inventory --------------------Materials or Goods Transferred Out of The Account
Conversion Costs
Direct Labor + Factory Overhead Cost
Tell the COGs story
Items recently moved from raw materials, into the production room, and were turned into a finished product. The amount of finished goods we had at the beginning of the period + the Cost of Goods Manufactured - The ending balance = Cost of Goods Sold What we had + the Cost of Goods Manufactured - what we ended with = The Cost of Goods Sold for the Period