An Introduction to Management Accounting Emphasizing the flow of costs through factory. Richard E. McDermott
Understanding the Factory Manufacturing costs Total manufacturing costs Cost of goods manufactured
McDermott Manufacturing Administration Marketing Raw Material Storeroom Factory Supervisor Finished Goods Storeroom
Some Basic Formulas Beginning inventory + transferred in - ending inventory = transferred out BI + TI – EI = TO Generic TermsRaw Materials Storeroom Terms Factory TermsFinished Goods Storeroom Terms Beginning inventoryBeginning inventory raw materials Beginning inventory work-in-process Beginning inventory finished goods Transferred inPurchasesManufacturing costs added Cost of goods manufactured Ending inventoryEnding inventory raw materials Ending inventory work- in-process Ending inventory finished goods Transferred outDirect materials or indirect materials transferred to the factory or to overhead Cost of goods manufactured Cost of goods sold
Indirect Costs Overhead Costs Administrative and Marketing Indirect Costs
Other Terms Manufacturing costs added Total manufacturing costs Cost of goods manufactured
McDermott Manufacturing Administration $13,500 Marketing $6,000 Raw Material Storeroom BI = $12,000 TI = $30,000 EI = $27,000 Factory BI = $50,000 TI = overhead applied of $9,000, direct labor of $18,000, and direct materials of $15,000 EI = $32,000 Factory Supervisor $9,500 Direct Costs Indirect Costs Overhead Costs Finished Goods Storeroom BI = $17,000 TI = $60,000 ED = $12,000 Key BI = Beginning inventory TI = Transferred in EI = Ending inventory TO = Transferred out
Calculating the Cost of Raw Materials Transferred Out Of the Raw Material Storeroom Beginning inventory raw materials $12,000 Raw materials purchased$30,000 Ending inventory raw materials $27,000 BI + TI – EI = TO $12,000 + $30,000 - $27,000 = $15,000
Calculating the Cost of Goods Manufactured Beginning inventory work in process $50,000 Manufacturing costs added Direct labor Direct materials Factory overhead applied $18,000 $15,000 $9000 Ending inventory work in process $32,000 $50,000 beginning inventory work in process + a total of $42,000 of manufacturing costs added $-32,000 and ending inventory = $60,000 cost of goods manufactured.
Calculating the Cost of Goods Sold Beginning inventory finished goods $17,000 Cost of goods manufactured-- (Transferred in) $60,000 Ending inventory finished goods $12,000 Beginning inventory of finished goods equaling $17,000 + cost of goods manufactured of $60,000 - ending inventory finished goods of $12,000 = $65,000 cost of goods sold before adjustment for over or under applied overhead. Over or under applied overhead?
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