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Manufacturing and

Nonmanufacturing Costs
Manufacturing (direct materials, direct labor, factory overhead) and non-manufacturing costs; product
and period costs; raw materials, work-in-process and finished goods; cost of goods manufactured and
cost of goods sold; cost accounting cycle.
1. Introduction to manufacturing and nonmanufacturing costs

A manufacturing company incurs both manufacturing costs (also called, product costs) and nonmanufacturing
costs or expenses (also called, selling and administrative expenses). In the illustration below you can see the
difference between manufacturing and nonmanufacturing costs and their classification.

Illustration 1: Manufacturing vs. nonmanufacturing costs

Let us review these types of manufacturing and nonmanufacturing costs in more detail.
2. Manufacturing costs and their classification
Manufacturing costs are the costs that a company incurs in producing a product.

From the managerial accounting standpoint, there are three types of manufacturing costs:
1. Direct materials
2. Direct labor
3. Factory (or manufacturing) overhead
2.1. Direct materials as a type of manufacturing costs
Direct materials are raw materials that become an integral part of the finished goods.

Direct materials should be distinguished from indirect materials (part of overhead costs), about which we will
talk later.

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Direct materials always have a variable nature. Recall from other lectures that variable costs change in
proportion to production. For instance, in our example of Friends Corporation, the company purchases metal
parts (raw material) to produce valves. The more valves are produced, the more parts Friends Corporation has
to acquire. Therefore, parts have a variable nature; the amount of raw materials bought and used changes in
direct proportion to amount of valves created. For Friends Corporation, other direct materials would include, for
example, plastic parts and paint.

Different manufacturing companies will have different direct material costs depending on the types of finished
goods they produce. The table below provides a few examples.
Illustration 2: Examples of direct material costs
Examples Direct Materials
Publishing company Paper, ink, book covers, etc
Automobile manufacturer Tires, automobile metal parts, etc.
Computer manufacturer Hard drives, monitors, etc.

From the table you can see that direct materials are the integral part and a significant portion of finished goods.

2. Direct labor as a type of manufacturing costs

Almost any production plant or factory requires employees to operate equipment, move raw materials from the
warehouse to equipment, and so on. These employees are directly involved in the production process and cost
of their remuneration and benefits represents direct labor.

Direct labor is the cost of wages to be paid to individuals who work on specific products or in other words,
the cost of wages of employees who are directly involved in converting raw materials into finished goods.

Usually direct labor is a variable cost. In most situations the amount of direct labor required is directly correlated
with the amount of finished goods produced. For example, wages and related benefits of employees who
operate machinery to produce valves represent direct labor costs for Friends Corporation. The more valves are
to be produced, the more employees will be required to operate machinery, paint, assemble, etc.

Direct materials and direct labor, when added together, represent the prime cost. Direct materials and direct
labor are called prime costs because they are directly (physically, "primarily") associated with the production
of the finished good.
2.3. Factory overhead as a type of manufacturing costs
Factory overhead is any manufacturing cost that is not direct materials or direct labor.

Factory overhead can have variable or fixed nature, depending on whether overhead changes in direct
proportion with production levels. The following are some examples of factory overhead costs:
Illustration 3: Examples of fixed and variable factory overhead costs
Variable Factory Overhead Fixed Factory Overhead
Examples Examples

• Electricity • Depreciation
• Heating • Property taxes
• Water • Property insurance

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Variable Factory Overhead Fixed Factory Overhead
Examples Examples

• Indirect Materials • Salaries for non-production


employees
• Indirect Labor

Most items in the above table are self-explanatory, so they don't require further explanation, while indirect
materials and labor may benefit from further explication.

Indirect materials are materials that are (a) not an integral (physical) part of the finished goods, or (b) a
minor part of the finished goods to be economically traced to the finished good or have a very small physical
association with the finished product.

For example, Friends Corporation would treat the following costs as indirect materials: oil lubricants and light
bulbs used in manufacturing equipment, package boxes, wrenches, etc.

Other companies will have different types of indirect materials depending on their manufacturing processes.
The table below provides a few examples.
Illustration 4: Examples of indirect materials cost (overhead cost)
Examples Indirect Materials
Publishing company Glue, printing press lubricants, etc
Automobile Factory light bulbs, drill bits etc.
manufacturer
Computer manufacturer Assembly line lubricants, screwdrivers,
polishers, etc.

As you can see form the table, indirect materials are an insignificant portion or not an integral part of the
finished goods.

Indirect labor is the cost of production employees who are involved in the manufacturing process, but do
not work on a specific product.

For example, wages of custodians, maintenance people, supplies room supervisors, etc. are considered indirect
labor.

Direct labor and factory overhead, when added together, represent the conversion cost. Direct labor and
factory overhead are called conversion costs because they are involved in converting raw materials into
finished goods.

Illustration below shows relationship between direct materials, direct labor, overhead, prime cost and
conversion cost.
Illustration 5: Relationship between direct materials, direct labor, overhead, prime cost and conversion
cost

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3. Product (manufacturing) costs and period (nonmanufacturing) costs
Product costs are the manufacturing costs that are considered to be a cost of a product.

For manufacturing firms, product costs are only costs that are necessary to produce a finished product. As
discussed earlier in the tutorial, product costs (i.e. manufacturing costs) consist of direct materials, direct labor,
and factory overhead.
Product costs are assigned to an inventory account on the balance sheet, initially. When finished goods are
sold, the cost of goods sold is transferred to the balance sheet (expensed) and matched with sales revenue. As
product costs are assigned to inventory accounts, sometimes they are called inventoriable costs.

Important to note, that product costs are not always expensed in the period they are incurred. They are rather
expensed in the period when finished goods are sold: that is the cost of goods sold expense is matched with the
sales revenue. For instance, if in a company produced 50,000 units costing $10,000 in May 20X9, and in June
20X9 the company sold the aforementioned 50,000 units, the company would record the expense (i.e. cost of
goods sold) of $10,000 in June 20X9, not in May 20X9.

Period costs (also called, nonmanufacturing costs) are costs necessary to maintain business operations but
are not a necessary or integral part of the manufacturing process. They are matched with the revenues of a
specific time period (usually monthly) rather than included in the cost of the goods sold.

The most common example of period costs is selling and administrative expenses (S&A). S&A expenses are
deducted from revenues in the period in which they are incurred. See Illustration below for examples of period
costs.
Illustration 6: Examples of period costs (selling and administrative expenses)

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We will review accounting for manufacturing costs later in greater detail. Accounting for nonmanufacturing costs
is described here. Let's assume that in March 20X9 Friends Corporation incurred on account $500 of marketing
expense, $1,200 of sales salaries, $1,800 of office salaries, and $1,400 of office building depreciation
expenses. After adding up these costs the total period cost is $ 4,900. Friends Corporation records the following
journal entries for these costs:
Account Titles Debit Credit
Marketing Expense 500
Accounts Payable 500

Account Titles Debit Credit


Sales Personnel Salaries 1,200
Office Salaries 1,800
Salaries Payable 3,000

Account Titles Debit Credit


Office Depreciation Expense 1,400
Accumulated Depreciation 1,400

Overall, so far we have covered different types of product (manufacturing) and period (nonmanufacturing) costs.
Now, we will look in more detail how product costs are recorded by a company and flow from the beginning to
the end of the manufacturing process.
4. Inventories in manufacturing process

Let us begin by remembering the definition of inventory for manufacturing companies:

Inventory in a manufacturing company is items purchased (or created) by a company for (a) production of
other parts (raw materials or work-in-process) or (b) selling to customers (finished goods).

In our example of Friends Corporation what will be inventory? Items such as plastic parts, metal parts and paint
can be examples of manufacturing inventory.
(For people with technical background, we guessed what parts go into production of a valve. The guess may
not be 100% correct; however, for the purpose of our lecture it should be fine.)

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4.1. Inventories at different manufacturing stages
When a company manufactures a product, inventories go through the manufacturing process. The
manufacturing process has different stages. Depending on where inventory is (at what manufacturing stage) at
a point in time, it can be classified as raw materials, work-in-process, or finished goods. The below
illustration shows the sequence of inventory classification at different manufacturing stages.
Illustration 7: Inventory at different manufacturing stages

4.2. Raw materials inventory, T-accounts and related accounting


Raw materials inventory represents items that the manufacturer has purchased or produced to use in
manufacturing a product.

The cost of all raw materials at any point in time comprises raw materials inventory.
Raw materials can be classified as direct or indirect materials. As we have discussed earlier, direct
materials are raw materials that can be physically and directly associated with the finished product.

For example, Friends Corporation will classify plastic parts, paint, and metal parts as direct materials because
those can be directly associated with a valve (or batch of valves) produced.

Indirect materials do not physically become part of the final product or their association with the final
product is too small to be easily traced to the final product.

For example, Friends Corporation will classify janitorial supplies for the factory, grease for the machinery, and
light bulbs as indirect materials because they do not physically become part of the final product.

When materials (both direct and indirect) are purchased, they are recorded in the Raw Materials Inventory
account. For example, during March 20X9 Friends Corporation purchased $2,000 of paint, $7,000 of plastic and
metal parts, and $500 of light bulbs on account ($2,000 + $ 7,000 + $500 = $9,500). The journal entry to record
the purchase is as follows:
1) Purchase of raw materials:
Account Titles Debit Credit
Raw Materials Inventory 9,500
Accounts Payable 9.500

The Raw Materials Inventory T-account includes the following information (also refer to the below illustration
with the T-account):

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• Amount of raw materials available at the beginning of an accounting period (i.e. beginning balance as a debit
because inventory is an asset account).
• Cost of materials purchased during the accounting period (debit side).
• Cost of materials used in the manufacturing process (credit side).
• Available (not used) raw materials at the end of the accounting period (ending balance as a debit). The ending
balance in this accounting period becomes the beginning balance in the following accounting period.
Illustration 8: Raw materials inventory T-account

When a manufacturing company uses raw materials in the production process, the Raw Material Inventory
account is credited (decreased) and the Work-in-Process Inventory account is debited (increased). Therefore,
raw materials used in production (both direct and indirect) are the cost transferred out of the Raw Materials
Inventory account and the cost added to the Work-in-Process Inventory account.

Going back to our Friends Corporation example, assume that in March 20X9 the company used $1,000 of paint
and $4,000 of plastic and metal parts for a total of $5,000.

The following journal entry is posted:


2) Use of direct raw materials in production:
Account Titles Debit Credit
Work-in-Process Inventory 5,000
Raw Materials Inventory 5,000

In addition, assume that Friends Corporation used $100 light bulbs (indirect materials or overhead) during the
same period. The journal entry to record their use is presented below:
3) Use of indirect raw materials in production:
Account Titles Debit Credit
Factory Overhead 100
Raw Materials Inventory 100

Let's see how the above amounts are reflected in the Raw Materials Inventory T-account. In our example, on
March 1, 20X9 Friends Corporation had the beginning balance (BB) in the Raw Materials Inventory account of
zero ($0). The raw materials purchased and raw materials used are recorded in the T-account format as
follows:
Illustration 9: Friends Corporation raw materials inventory T-account

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As we can see from the T-account above, Friends Corporation debited $9,500 for materials purchased (i.e. cost
added) and credited $5,100 for materials used (i.e. cost transferred out (debited) to the Work-in-Process
Inventory account).

4.3. Introduction to work-in-process inventory

Raw materials are used in manufacturing finished goods. The conversion of raw materials into a final product is
not usually immediate and at a point in time, some raw materials inventory is being used at different stages of
production.

Started but not finished production is called work-in-process inventory.

Work-in-process normally includes not only raw material costs, but also other related costs, such as costs of
production employee wages, electricity, water and others that can be attributed to the production process.
Therefore, work-in-process inventory includes the following costs:
• Direct materials
• Direct labor
• Factory overhead

For example, Friends Corporation will have work-in-process because the valve manufacturing process takes
some time (raw materials are not converted into finished goods immediately). If there are three production
stages (e.g. drilling holes, attaching plastic seals, and applying paint), then at a point in time, there will be some
raw materials that have gone through drilling station, but not assembly or painting station, or some raw
materials that have gone through drilling station and assembly, but not painting station. Because all of the
mentioned raw materials are in production already, but have not gone through all manufacturing processes,
they represent work-in-process inventory.

Direct materials and direct labor are recorded in the Work-in-Process Inventory account directly, while factory
overhead is initially recorded in the Factory Overhead account and then transferred to the Work-in-Process
Inventory account at the end of the period. Let us review the Factory Overhead account and then we will return
to the Work-in-Process Inventory account.
4.4. Factory overhead, T-account and related accounting

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The Factory Overhead account includes the following information (also refer to the below illustration with the T-
account):
• Zero beginning balance.
• Overhead costs debited (incurred) to the account during the accounting period (debit side).
• Overhead costs transferred (applied, credited) to the Work-in-Process Inventory account (credit side) during the
accounting period.
• Zero ending balance (*).

(*) Note: The Factory Overhead account may have a balance different from zero after overhead costs are
applied to the Work-in-Process Inventory account during the period. This may happen when actual overhead
costs incurred are different from the overhead costs applied to the Work-in-Process Inventory account.
However, the calculation of overhead application rate and determining how to treat the balance in the account
after period end is beyond the scope of this lecture. For this illustration, we assumed that the entire balance in
the Factory Overhead account is transferred to the Work-in-Process account and the ending account balance is
zero.
Illustration 10: Factory overhead T-account

From the above illustration we can see that the incurred overhead costs are recorded on the debit side with
credits to various other accounts, such as:
• Raw Materials Inventory (for indirect materials)
• Accounts Payable (for various overhead costs incurred on account)
• Cash (for various overhead costs paid with cash)
• Accumulated Depreciation (for depreciation expense related to production fixed assets).

Let's see how the Factory Overhead account looks like for Friends Corporation. The company used $100 of
light bulbs during March 20X9. The bulbs represent indirect materials (factory overhead) and their use is
recorded as follows (entry from the Raw Materials topic repeated here for convenience):
3) Use of indirect raw materials in production:
Account Titles Debit Credit
Factory Overhead 100
Raw Materials Inventory 100

To continue with the example, in March Friends Corporation recognized $400 of depreciation expense on
factory equipment (overhead), and paid $600 in cash for factory utilities (overhead).

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To record these costs, Friends Corporation makes the following entries:
4) Use of equipment in production (depr.):
Account Titles Debit Credit
Factory Overhead 600
Accumulated Depreciation 600
5) Use of factory utilities in production:
Account Titles Debit Credit
Factory Overhead 400
Cash 400

As we noted earlier, the balance in the Factory Overhead account is transferred to the Work-in-Process
Inventory account at period end. Thus, at the end of March, Friends Corporation transfers the balance from the
Factory Overhead account to the Work-in-Process Inventory account. The accumulated overhead and journal
entry are presented below (also refer to the illustration of the T-account):
Entry # Factory Overhead Description Amount
(3) Bulbs (indirect materials) 100
(4) Use of equipment (depreciation) 600
(5) Factory utilities 400
Total $1,100
6) Transfer factory overhead to work-in-process:
Account Titles Debit Credit
Work-in-Process Inventory 1,100
Factory Overhead 1,100

Illustration 11: Friends Corporation factory overhead T-account

4.5. Work-in-process inventory, T-accounts and related accounting

After we have seen T-account and related accounting for factory overhead, let's look at the Work-in-Process
Inventory account. The Work-in-Process Inventory account includes the following information:

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• Amount of work-in-process inventory available at the beginning of an accounting period (i.e. beginning balance
as a debit because inventory is an asset account). The balance represents manufacturing costs for unfinished
production at the beginning of the period.
• Manufacturing costs transferred to the account during the accounting period (debit side). The costs include
direct materials, direct labor, and factory overhead. Such costs are for items added to the production process
during the period.
• Manufacturing costs transferred to the Finished Goods Inventory account (credit side). Such costs represent
goods which were finished during the period and which became ready for the final customer.
• Amount of work-in-process inventory available at the end of the account period. The balance represents
manufacturing costs for unfinished production at the end of the period. This balance becomes the beginning
balance for the following accounting period.
Illustration 12: Work-in-process inventory T-account

Let us continue with our example of Friends Corporation. Some transactions that have already taken place and
a new transaction for direct labor are summarized below.

Friends Corporation used $1,000 of paint and $4,000 of plastic and metal parts in the production. The journal
entry to record the transfer of this $5,000 from direct raw materials to work-in-process was as follows (entry
from the Raw Materials topic repeated here for convenience):
2) Use of direct raw materials in production:
Account Titles Debit Credit
Work-in-Process Inventory 5,000
Raw Materials Inventory 5,000

Factory overhead costs in amount of $1,100 were transferred to the Work-in-Process Inventory account during
March 20X9 (entry from the Factory Overhead topic repeated here for convenience):
6) Transfer overhead to work-in-process:
Account Titles Debit Credit
Work-in-Process Inventory 1,100
Factory Overhead 1,100

In addition, let's assume that during March Friends Corporation also incurred $2,000 on account for direct labor
costs, which is recorded as follows:
7) Use of direct labor in production:

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Account Titles Debit Credit
Work-in-Process Inventory 2,000
Wages Payable 2,000

The above entries show the added cost to the Work-in-Process Inventory account.

Once the products are finished and transferred out to the Finished Goods Inventory account, the Work-in-
Process Inventory account is credited (decreased) and the Finished Goods Inventory account is debited
(increased). The credit to the Work-in-Process Inventory account represents the cost of the goods
manufactured (COGM), while the debit in the Finished Goods Inventory account shows the cost of goods ready
to be sold.

For example, during March Friends Corporation finished producing valves with the manufacturing cost of $8,600
and posted the following the journal entry:
8) Transfer finished goods from work-in-process:
Account Titles Debit Credit
Finished Goods Inventory 8,600
Work-in-Process Inventory 8,600

The summary of the Work-in-Process Inventory T-account activity for March 20X9 looks as follows. Assume
that the beginning balance was $5,000:
Illustration 13: Friends Corporation work-in-process inventory T-account

4.6. Finished goods inventory, T-accounts and related accounting

After raw materials have gone through the entire production process, they become finished goods.

Finished goods are completed manufactured items that a company has produced for sale to customers.

The Finished Goods Inventory account shows the following information (also refer to the illustration below):

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• Costs of finished goods inventory available at the beginning of an accounting period (i.e. beginning balance as
a debit because inventory is an asset account). The balance represents finished goods available for sale at the
beginning of the period.
• Cost of goods manufactured (COGM) that were transferred from work-in-process inventory to finished goods
during the accounting period (debit side).
• Cost of goods sold (COGS) during the period (credit side).
• Costs of finished goods available at the end of the account period.
Illustration 14: Finished goods inventory T-account

In our example, Friends Corporation will classify completed valves ready to be sold as finished goods. As we
stated earlier, at the end of March 20X9 Friends Corporation finished manufacturing valves that cost $8,600,
and the journal entry to record that was as follows (entry from the Work-in-Process topic repeated here for
convenience):
8) Transfer finished goods from work-in-process:
Account Titles Debit Credit
Finished Goods Inventory 8,600
Work-in-Process Inventory 8,600

To continue our example, let's assume that during March 20X9 Friends Corporation sold on account valves
costing $7,900, and the sales price was $15,000. The $7,900 represents the Cost of Goods Sold (COGS). The
journal entry to record the cost of goods sold is presented below (also refer to the illustration under the journal
entry):
9) Record cost of goods sold:
Account Titles Debit Credit
Cost of Goods Sold (COGS) 7,900
Finished Goods Inventory 7,900

Let's look at the Finished Goods Inventory T-account. Assume that at the beginning of March Friends
Corporation had a balance of $6,000 in this account.
Illustration 15: Friends Corporation finished goods inventory T-account

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From other lectures, we recall that when finished goods are sold, two entries are posted: One to record the cost
of goods sold and the other to record the sales revenue. The COGS entry is shown above (entry # 9). The sale
revenue journal entry is presented below:
10) Record sales revenue:
Account Titles Debit Credit
Accounts Receivable 15,000
Sales Revenue 15,000

Note that COGS decreases (credits) the Finished Goods Inventory account. COGS is recorded in the income
statement after the Sales Revenue line; it is subtracted from Sales Revenue to calculate Gross Margin. We will
discuss the income statement of a manufacturing company in more detail later in this lecture.
4.7. Cost accounting cycle with T-accounts (summary of how costs flow)

The below illustration shows the full cost accounting cycle (from raw materials to finished goods) for Friends
Corporation during March 20X9. For simplicity, T-accounts only show activity for the month and don't show
beginning and ending account balances.
Illustration 16: Cost flow from raw materials to work-in-process to finished goods

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4.8. Cost of goods manufactured and cost of goods sold
As we noted earlier, when finished goods are sold, their cost is called the cost of goods sold (COGS). The
cost of goods sold is based on the cost of goods manufactured (COGM).

Refer to the below illustrations showing how COGS and COGM are determined.
Illustration 17: Formula for cost of goods manufactured (COGM)
(+) Beginning Balance of WIP
Inventory
(+) Direct Materials
(+) Direct Labor
(+) Factory Overhead
(–) Ending Balance of WIP Inventory
(=) Cost of Goods Manufactured
Illustration 18: Formula for cost of goods sold (COGS)
(+) Beginning Balance of FG
Inventory
(+) Cost of Goods Manufactured
(–) Ending Balance of FG Inventory
(=) Cost of Goods Sold

Manufacturing companies have to prepare the schedule of costs of goods manufactured before they prepare
the income statement. Using the same data as in the previous sections, let's prepare the schedule of cost of
goods manufactured for Friends Corporation for the month of March 20X9:
Illustration 19: Schedule of cost of goods manufactured for Friends Corporation

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Friends Corporation
Statement of Cost of Goods Manufactured
For the Month Ended March 31, 2009
Direct Materials
Beginning Inventory $0
Purchases 9,000
Direct Materials Available 9,000
Ending Direct Materials Inventory (4,000)
Direct Materials Used 5,000
Direct Labor 2,000
Factory Overhead 1,100
Total Manufacturing Cost 8,100

Add: Beginning Work-in-Process Inventory 5,000


Total Manufacturing Cost to Account for 13,100
Less: Ending Work-in-Process Inventory 4,500
Cost of Goods Manufactured $ 8,600

A few notes in relation to the above table are presented below:


• Direct material purchases included $2,000 of paint and $7,000 of plastic and metal parts.
• Friends Corporation also purchased some light bulbs. The $500 of light bulbs purchased was included in the
Raw Materials Inventory account, but since the bulbs are not direct materials, they were not recorded as part of
the direct materials cost. Later, Friends Corporation used $100 of light bulbs in the manufacturing process, and
this cost was recorded as part of the Factory Overhead cost.
• Factory Overhead of $1,100 = $100 (light bulbs) + $400 (depreciation of factory equipment) + $600 (factory
utilities).

Friends Corporation could use a slightly different format as well, refer to the below illustration:
Illustration 20: Schedule of cost of goods manufactured for Friends Corporation
Friends Corporation
Statement of Cost of Goods Manufactured
For the Month Ended March 31, 2009
Beginning Working-in-Process Inventory $ 5,000
Direct Materials
Beginning Inventory 0
Purchases 9,000
Direct Materials Available 9,000
Ending Direct Materials Inventory (4,000)
Direct Materials Used 5,000
Direct Labor 2,000
Factory Overhead
Indirect Materials 100
Depreciation of factory equipment 400

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Friends Corporation
Statement of Cost of Goods Manufactured
For the Month Ended March 31, 2009
Factory Utilities 600
Total Factory Overhead 1,100
Total Manufacturing Costs 8,100
Total Cost of Work-in-Process 13,100
Less: Ending Work-in-Process Inventory (4,500)
Cost of Goods Manufactured 8,600

Note that the resulting cost of goods manufacturing does not change between the two formats. The only
difference is the order of accounts presentation.

Raw Materials, Work-in-Process, and Finished Goods Inventory accounts are real accounts. That is, they are
not temporary accounts and are not closed to Retain Earnings at the end of the accounting period. These
inventory accounts are reported in the assets section of the balance sheet.
4.9. Income statement for manufacturing companies

Using information from the previous sections (including the schedules for cost of goods manufactured), Friends
Corporation prepared the below income statement:
Illustration 21: Income statement for Friends Corporation
Friends Corporation
Income Statement
For the Month Ended March 31, 2009
Sales $15,000
Cost of Goods Sold
Beginning Finished Goods Inventory 6,000
Cost of Goods Manufactured 8,600
Cost of Goods Available for Sale 14,600
Ending Finished Goods Inventory (6,700) 7,900
Gross Margin 7,100

Selling and Administrative Expenses 4,900


Operating Income 2,200

Note that the COGS account is a nominal account. That is, it is a temporary account that is closed to Retained
Earnings at the end of the accounting period. The same is true for other income statement accounts.

UnlimitedShoesInc Company's books show the following information for December 20X9:
Account Dec 1 Dec 31
Raw Materials Inventory $ 500 $ 1,100
Work-in-Process Inventory $ 630 $ 420
Finished Goods Inventory $ 170 $ 860

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Additional information about UlimitedShoesInc Company for the same period is presented below:
1 Direct raw materials purchased $ 6,700
2 Indirect raw materials purchased 400
3 Direct labor costs incurred 4,300
4 Factory depreciation recognized 1,400
5 Office building depreciation recognized 750
6 Factory utilities recognized (paid in cash) 2,400
7 Office building utilities recognized 300
8 Indirect materials used in production 500
Top of Form
What was the cost of direct materials transferred to the Work-in-Process Inventory
account?
a)
$6,700

b)
$7,100

c)
$600

d)
$6,000
Bottom of Form

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