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samestepp samestepp
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Your friend who has just completed the first accounting course understands the items that appear on the balance sheet and income statement. However, when you told her your homework involved preparing a Schedule of Cost of Goods Manufactured she was confused and ask if that was the Cost of Goods Sold that appears on the income statement. Explain to your friend the purpose of the Schedule of Cost of Goods Manufactured, how it is prepared, and its relationship to the balance sheet and income statement.
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Managerial Accounting


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TAE29TAE29
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The Schedule of Cost of Goods Manufactured is helpful in calculating the cost of goods manufactured. The schedule sounds complex and intimidating, but it is nothing more than a restatement of the Work in Process Inventory account. To prepare the schedule, begin with the total manufacturing costs incurred during the period — direct materials used in production, direct labor incurred, and manufacturing overhead applied. To that total, add the beginning balance in the Work in Process Inventory account. Finally, subtract the ending balance in the Work in Process Inventory account. The remaining amount is the cost of goods manufactured. Its relationship to the income statement is that the cost of goods manufactured is used in the calculation of Cost of Goods Sold That is, add cost of goods manufactured to beginning Finished Goods and deduct ending Finished Goods to determine Cost of Goods Sold. The relationship to the balance sheet is that calculating cost of goods manufactured requires adding beginning Work in Process inventory and deducting ending Work in Process inventory. Ending inventories for Raw Materials, Work in Process, and Finished Goods all appear as current assets on the balance sheet.

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