Cost of Goods Sold in a Manufacturing Company

Cost of Goods Sold in a Manufacturing Company

in general

·         costs are recognized as expenses on the statement of profit and loss in the period that benefits from the cost

2- This means that if a cost is incurred to acquire or make something that will eventually be sold, then the cost should be recognized as an expense only when the sale takes place—that is, when the benefit occurs. Such costs are called product costs.

in SOPL

·         Product Costs = Cost of goods sold
Period Costs = Operating expenses

product cost

·         Product costs are initially assigned to an inventory account on the statement of financial position

WHEN THEY ARE SOLD : an expense ( COGS)

emphasize that product costs are not necessarily treated as expenses in the period in which they are incurred

They are treated as expenses in the period in which the related products are sold

PERIOD COST also called inventory cost

·         period costs are expense on the income statement of profit and loss

statement of financial position,

·         manufacturing companies have three classes of inventories— raw materials + work in process, + finished goods = total inventory account

statement of profit and loss

·         sales --( the following ) = gross margin

2 -Beginning balance +Additions to inventory(Cost of goods manufactured or purchases) = goods available for use

3- goods available for use -- ending inventory =gross margin

4- gross margin - admin expenses and selling expenses = net income

Cost of Goods Sold in a Merchandising Company

·         Beginning merchandise inventory+Purchases=
Ending merchandise inventory+ Cost of goods sold

or

#cost of goods sold = Beginning merchandise inventory + Purchases -- Ending merchandise inventory#

Cost of Goods Sold in a Manufacturing Company

·         #Cost of goods sold= Beginning finished goods inventory + COGM --ending finished goods inventory#

Prepare a Cost of Goods Manufactured Statement
step 1 (direct martial)

·         direct martial beginning inventory
add: direct martial purchase
= direct martial available for use
less: direct martial endinsg inventory
= #direct martial used for production#

( step 2 )cost of goods manufactured

·         direct martial + direct labor + manufacture overheads( usually a lot like all the indirect cost and all factory related cost ) = Total manufacturing cost

2- Total manufacturing cost + Beginning work in process inventory

3- Deduct: Ending work in process inventory = #Cost of goods manufactured#

(step 3)Cost of goods sold

·         Cost of goods manufactured + finished goods beginning inventory= available finished goods

2- available finished goods - finished goods ending inventory = cost of goods sold

than we deduct admin and selling expenses = net operating income