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Chapter 16: 16RQ (page 885)

How is cost of goods manufactured calculated?

Short Answer

Expert verified

The cost of goods manufactured in three steps first direct material used is calculated, second total manufacturing costs incurred, and then the cost of goods manufactured is calculated.

Step by step solution

01

Definition of cost of goods manufactured

The cost of goods manufactured is defined as the manufacturing costs of the goods that finished the production process during a given accounting period.

02

Calculation of cost of goods manufactured

The cost of goods manufactured in three steps which are as follows:

Step 1: Calculation of direct material used.

Step 2: Calculation of total manufacturing costs incurred during the year.

Step 3: Calculation of cost of goods manufactured.

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Most popular questions from this chapter

Distinguishing between direct and indirect costs Granger Cards is a manufacturer of greeting cards. Classify its costs by matching the costs to the terms.

  1. Direct materials
  2. Direct labor
  3. Indirect materials
  4. Indirect labor
  5. Other manufacturing overhead

a. Artists’ wages

b. Wages of materials warehouse workers

c. Paper

d. Depreciation on manufacturing equipment

e. Manufacturing plant manager’s salary

f. Property taxes on manufacturing plant

g. Glue for envelopes

Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost.

9. Sugar and flour used to make cookies

Computing cost of goods sold and operating income, merchandising company

Consider the following partially completed income statements for merchandising companies and compute the missing amounts:

Smith, Inc. Allen, Inc.

Net Sales Revenue \( 101,000 \) (d )

Cost of Goods Sold:

Beginning Merchandise Inventory (a) 29,000

Purchases and Freight In 50,000 (e)

Cost of Goods Available for Sale (b) 89,000

Ending Merchandise Inventory (2,200) (2,200)

Cost of Goods Sold 61,000 (f)

Gross Profit 40,000 114,000

Selling and Administrative Expenses (c ) 84,000

Operating Income \( 12,000 \) (g)

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

e. Cost of chemicals to treat the paper.

Identifying ethical standards

The Institute of Management Accountants’ Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?

a) You tell your brother that your company will report earnings significantly above financial analysts’ estimates.
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