calculate cost of goods manufactured © dale r. geiger 20111

Calculate Cost of Goods Calculate Cost of Goods ManufacturedManufactured

© Dale R. Geiger 2011 1

Terminal Learning ObjectiveTerminal Learning Objective• Task: Calculate Cost of Goods Manufactured• Condition: You are a cost advisor technician with

access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.

• Standard: with at least 80% accuracy.• Explain terminology• Differentiate between product and period costs• Identify key elements in Inventory chain template• Solve for missing variables in Inventory chain template


Input

Output

What is the Cost of the

Output?


Cost Accounting TerminologyCost Accounting Terminology

• Direct Costs• MATERIALS and LABOR that can be identifiedidentified

with a particular product or process• Example: Lumber and hardware for furniture

• Indirect Costs• PRODUCTION-RELATED costs that cannot be

identifiedidentified with a particular product or process• Example: Maintenance on power tools



• Manufacturing Overhead• An AGGREGATION of indirect production-

related costs• Will be ASSIGNED to products or processes and

become part of the cost of the product• Conversion Costs• Costs incurred to CONVERT raw materials into

finished goods • Examples: cost of machinery, labor, utilities






finished goods• Examples: cost of machinery, labor, utilities


Overhead IllustrationOverhead Illustration

• Supervisor’s Salary • Utilities• Factory Depreciation• General Supplies

• Assigned to Products

2000 700 250 100

Manufacturing OverheadManufacturing Overhead

3050 3050


Check on LearningCheck on Learning

• Costs that can be identified with a particular product or process are called

• An aggregation of indirect costs is called



• Product Costs• All costs incurred in the PRODUCTION of goods • Examples: Flour, sugar, baker’s wages, cost of

operating and maintaining bakery equipment • Must be CAPITALIZED to the inventory account• Will only be reported as an EXPENSE when the

product is sold





product is sold



• Period Costs• Costs incurred in all activities other than the

production of goods• Examples: Administrative Salaries, Sales

Commissions, Sales and Administrative Facilities• Will be reported as expenses on the Income

Statement in the period incurred• May be allocated to products for managerial

purposes



• The cost of utilities for the manufacturing facility would be a product or a period cost?

• The cost of utilities for the retail sales outlet would be a product or a period cost?

• Period costs are reported on which financial statement?


Cost ClassificationCost Classification

• Which are Direct Costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor

Other Overhead© Dale R. Geiger 2011

23


• Which are Direct Costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


24


• Which are Indirect Costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


25


• Which are Indirect Costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


26


• Which are overhead?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


27


• Which are overhead?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


28


• Which are conversion costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


29


• Which are conversion costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


30


• Which are product costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


31


• Which are product costs?

Direct Materials

Direct Labor

Indirect Materials

Indirect Labor


32


• Which category of cost includes all production costs except Direct Materials?


Types of InventoriesTypes of Inventories

• Merchandise Inventory• Includes goods purchased from a supplier and

sold to the customer without alteration• Examples?

• Raw Materials Inventory• Includes purchase cost of Direct Materials held

in inventory • Examples?


Types of InventoriesTypes of Inventories

• Work in Process Inventory• Includes Direct Materials costs and capitalized

labor and overhead costs of unfinished goods• Examples?

• Finished Goods Inventory • Includes Cost of Goods Manufactured

by the seller • Examples?


Overhead

The Inventory ChainThe Inventory Chain


Overhead



OverheadOverhead



Overhead




OverheadOverhead


Input-Output EquationInput-Output Equation

Beginning + Input – Output = End

If you take more water out of the bucket than you put in,

what happens to the level in the bucket?



• What are the key variables to the Work in Process account?

• What is the input to the raw materials account?


Using the Inventory ChainUsing the Inventory Chain


Practical ExercisePractical Exercise


Accounting for Manufacturing Accounting for Manufacturing SpreadsheetSpreadsheet

Enter the information given in the exercise above into the white blanks in the T-accounts



The “Results” tab displays the calculations using the given data



“Solve” indicates that the value displayed has been calculated using the information given in the Data Input tab.


calculate cost of goods manufactured © dale r. geiger 20111

Documents

product conversion costs

productionrelated costs

furniture indirect costs

period costs

particular product

process example

cost of machinery

power tools dale