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Cost of Goods Manufactured

When you prepare the financial statements for a manufacturer, you must prepare a schedule of cost of goods manufactured. A manufacturer did not purchase the product that it is selling—it built the product. The schedule of cost of goods manufactured reports the total manufacturing costs for the period and the dollar amount for cost of goods manufactured for the period. The dollar amounts that appear on the schedule of cost of goods manufactured are the same as those that appear in the raw materials and work in process inventories shown on the previous page. The only difference is that you will provide a detailed breakdown of the factory overhead costs, which was not provided (though it could have been) in the work in process inventory calculation shown on the previous page.

Click each link below to highlight the corresponding area of the table above.

Calculations:

1. direct materials used = beginning raw materials inventory + purchases of raw materials – ending raw materials inventory
   • direct materials used = $100,000 + $550,000 – $150,000
   • direct materials used = $500,000
2. total factory overhead = indirect labor + depreciation + other factory overhead costs.
   • total factory overhead = $100,000 + $30,000 + $20,000
   • total factory overhead = $150,000 
3. total manufacturing costs during year = direct materials used + direct labor + total factory overhead
   • total manufacturing costs during year = $500,000 + $400,000 + $150,000
   • total manufacturing costs during year = $1,050,000
4. total manufacturing costs to account for = beginning work in process inventory + total manufacturing costs during year
   • total manufacturing costs to account for = $200,000 + $1,050,000
   • total manufacturing costs to account for = $1,250,000
5. cost of goods manufactured = total manufacturing costs to account for – ending work in process inventory
   • cost of goods manufactured = $1,250,000 – $250,000
   • cost of goods manufactured = $1,000,000
6. The ending inventory for raw materials, $150,000, will appear in the current assets section of ABC’s balance sheet.
7. The ending inventory for work in process, $250,000, will appear in the current assets section of ABC’s balance sheet.

The total for cost of goods manufactured from the statement of cost of goods manufactured ($1,000,000 in this example) is the amount used in the cost of goods sold section of the income statement.

Assuming that the company produced 5,000 units during the year, you would calculate the cost per unit of production as follows:

• unit product cost = cost of goods manufactured / total units produced
• unit product cost = $1,000,000 / 5,000 units
• unit product cost = $200 per unit