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