period costs for a manufacturing company would flow directly to: This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Manufacturing Activities Cost Flow – Cost Flows in a Manufacturing Company. Following along are instructions in the video below:
“This presentation. We will take a look at the manufacturing activities flow. We ll take take a look at the costs of the manufacturing process and how they flow through manufacturing process. How we will track and organize these costs as we go for more accounting information and accounting courses visit our website at accounting instruction dot info.
Remember that the major difference between the cost of goods sold calculation for a merchandiser. A company that purchases and sales inventory and a manufacturer. One that makes the inventory is going to be that a merchandiser has these purchases item where they just gonna purchase the inventory. And the manufacturer is gonna have a cost of goods manufactured so this number then becomes the number that we need to determine how are we going to get to this number four.
If we talk about a merchandiser. It s very easy for us to know what the purchases are because that s what we purchased that s pretty straightforward for the manufacturer. However the cost of the goods. We manufacture is going to include more than just what we purchased more than just raw material.
It s going to include the things such as direct labor and overhead. So we ll take a look at this in three broad categories. Well we ll have the materials. We ll have the production and then we ll eventually be selling the materials.
We ll make it remember that the in process here is of course the production of inventory. The ultimate goal to be selling it so most of this that we re thinking about is all kind of balance sheet stuff until we get to the end..
When we sell it. Which is going to be similar to a merchandising company. Where what s where at the end we sell it moving it from the balance sheet to the income statement in the form of cost of goods sold so first we have the materials that we think of and the materials. We can think of we ll run through a similar process as when we just buy and sell inventory from a merchandising company meaning.
We re going have the materials that s already in the warehouse. The materials that we have from last month are still there this month. We re going to include to those materials. What we purchase so we re going to add purchases to those materials and then we re going to subtract from them ending materials.
What is still there we re going to count the materials bills will be the indian materials and that will give us the materials used now this calculation should look pretty similar to our cost of goods sold that you want to be able to understand this calculation. Because it s the same kind of thing for our cost of goods sold for a merchandising company and similar to the cost of goods sold for a manufacturer. As well note. We have two beginning inventory materials.
We could have we could have a subcategory. If we wanted to assay materials. Available for use and then we re going to subtract out the ending materials to give us the materials used so this is going to be our purchasing and you can think of this just as us you know purchasing the materials that we have and going through this process to determine the materials that we re gonna use within production now once that happens we re gonna say okay. That s gonna go to our production area here.
This number here is gonna be part of production. This is what we used to produce..
But it s not the only thing that we had in production because in production. We also had the beginning work in process when we think about production. We re thinking about what s in process work in process wip whip is often used here. So we re gonna say well well.
We already had some stuff that was in work in process now and this month. According to this calculation. We included more materials here based on this calculation to the work in process and so we re gonna add that in but we re also gonna add direct labor and the overhead and these are the two areas that are often overlooked within the production process because when we think of goods and services. We often think of just the stuff.
It s made out of it s made out of plastic. It s made of the guitars made out of wood. But of course. The major components that include that comprise the cost of it our labor and overhead.
So we have to include that in the production process and these two items are the confusing things to most people because they re gonna differ. When we record them here as to when we had a service company or a company that just buys and sells inventory. Because some things like utilities on the warehouse. Some things like depreciation.
We re not going to expense them as we had in the past. We re going to include them in the cost of production..
We re going to include them in the cost of inventory. And that s gonna then we re gonna subtract out the ending work in process what s still there what s not completed yet so we re gonna count what s still in the ending work in process and not yet done and that ll give us the cost of goods manufactured so again. These two calculations you can see of them of similar. They re similar in nature meaning.
We had beginning work in process and then not purchases. But the materials used and all the labor. These three items being what we added to it what we made from it we didn t buy it we made it we transferred over this and then we added. The labor and the overhead.
Those are all costs that we put into it we could have then beginning. We could then have a subcategory if we chose to which would be work in process available. Okay and then and then subtract out the ending work in process. So it s similar formulas that we have here this time our bottom line number getting to cost of goods manufactured not to be confused with cost of goods sold cost of goods manufactured is what we made during this time period cost of goods sold is going to be what we actually sold during this time period cost of goods manufactured will be used in the calculation for cost of goods sold.
However. Which would be the beginning inventory. I m sorry beginning the finished goods inventory so now we re looking at the the goods that are done now the finished goods inventory and then we re going to add to it the cost of goods manufactured instead of as we would for a merchandiser. A company that just purchases and sells inventory where this would be purchases.
So this is the different number here between those two that s going to give us the goods available for sale just a subcategory. This is what we could have sold during the time period..
This is our calculation of cost of goods sold that we saw prior and then that s going to give us our ending finished good and then we re going to subtract from that our indian finished goods inventory. Which we could get from a physical account to finally get the cost of goods sold. We have the sales item here the only the only area here that s gonna be on the income statement is the cost of goods sold and it s not the sales item. We don t know what we sold it for that were we we would but these this flow doesn t track the sales price.
The sales price has nothing to do directly with the cost of the goods sold. We might use the cost to derive the sales price. But this remember we re tracking the cost so when we sell something we re gonna wear if it s if it s a perpetual system we re gonna we re gonna debit cash or debit accounts receivable credit sales revenue sales will be recorded that s the part that s not here. We re also going to debit cost of goods sold the expense and reduce inventory and that s in credit inventory.
And that s what we are tracking here this is going to be the cost of goods sold the expense portion of the sales. We make when we make a sale. We have the related expense of cost of goods sold note that this expense this one time that we re finally hitting the income statement. Is comprised of all this activity that we ve done the direct materials are included in it the direct labor is included in it the overhead is included in it all that stuff that we ve been tracking this whole time and haven t been putting on the income statement at all we ve just been putting it on the balance sheet.
As just lumping. It in together as part of inventory is finally being expensed all together as we sell it in the form of cost of goods sold for more accounting information and accounting courses visit our website at ” ..
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