What is the link that connects the cost of goods manufactured to the schedule of the cost of goods sold explain your response?

1.5 The Statement of Cost of Goods Manufactured

The statement of cost of goods manufactured supports the cost of goods sold figure on the income statement. The two most important numbers on this statement are the total manufacturing cost and the cost of goods manufactured. Be careful not to confuse the terms total manufacturing cost and cost of goods manufactured with each other or with the cost of goods sold.

Total Manufacturing Cost includes the costs of all resources put into production during the period (meaning, the direct materials, direct labor and overhead applied). Cost of goods manufactured consists of the cost of all goods completed during the period. It includes total manufacturing costs plus the beginning work in process inventory minus the ending work in process inventory. Cost of goods sold are the costs of all goods SOLD during the period and includes the cost of goods manufactured plus the beginning finished goods inventory minus the ending finished goods inventory. Cost of goods sold is reported as an expense on the income statements and is the only time product costs are expensed. This chart will summarize the formulas you will need:

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1.5 The Statement of Cost of Goods Manufactured
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What is the link that connects the schedule of cost of goods manufactured?
How the cost of goods manufactured relates to the cost of goods sold?
What is the schedule of cost of goods manufactured?
What is the reason for the schedule of cost of goods manufactured?

Direct Materials Used	Beginning Raw Materials Inventory + Raw Material Purchases - Ending Raw Materials Inventory - Indirect Materials Used
Total Manufacturing Cost	Direct Materials + Direct Labor + Overhead applied
Cost of Goods Manufactured	Total Manufacturing Cost (Direct Materials + Direct Labor + Overhead applied) + Beginning Work In Process Inventory - Ending Work in Process Inventory
Cost of Goods Sold	Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory

NoteLook at the following example. Farside Manufacturing makes calendars and books. The schedule (or statement) of cost of goods manufactured follows:

Farside Manufacturing Company
Statement of cost of goods manufactured
For the year ended December 31
Direct Materials Used:
Raw Materials inventory, January 1	$40,000
Raw Materials purchases	480,000
Less: Raw Materials inventory, December 31	30,000
Raw Materials used	$490,000
Less: Indirect Materials Used	$0
Direct Materials Used		$490,000
Direct labor		380,000
Manufacturing overhead:
Indirect labor	$120,000
Maintenance and repairs expense	60,000
Factory utilities expense	10,000
Depreciation expense – factory building	20,000
Depreciation expense – factory equipment	30,000
Other expense – factory	20,000
Total manufacturing overhead		260,000
Total Manufacturing Cost		$1,130,000
Add: Work in process inventory, January 1		30,000
Less: Work in process inventory, December 31		-60,000
Cost of goods manufactured		$1,100,000

Note how the statement shows the costs incurred for direct materials, direct labor, and manufacturing overhead. The statement totals these three costs for total manufacturing cost during the period. When adding beginning work in process inventory and deducting ending work in process inventory from the total manufacturing cost, we obtain cost of goods manufactured or completed. Cost of goods sold does not appear on the cost of goods manufactured statement but on the income statement.

To make the manufacturer’s income statement more understandable to readers of the financial statements, accountants do not show all of the details that appear in the cost of goods manufactured statement. Next, we show the income statement for Farside Manufacturing Company. Notice the relationship of the statement of cost of goods manufactured to the income statement.

The cost of goods manufactured appears in the cost of goods sold section of the income statement. The cost of goods manufactured is in the same place that purchases would be presented on a merchandiser’s income statement. We add cost of goods manufactured to beginning finished goods inventory to derive cost of goods available for sale. This is similar to the merchandiser who presents purchases added to beginning merchandise to derive goods available for sale.

Farside Manufacturing Company
Income statement
For the year ended December 31
Sales		$1,800,000
Cost of goods sold:
Finished goods inventory, January 1	$50,000
Cost of goods manufactured	1,100,000
Cost of goods available for sale	$1,150,000
Less: Finished goods inventory, December 31	60,000
Cost of goods sold		1,090,000
Gross margin (Sales - Cost of goods sold)		$710,000
Operating expenses:
Selling expenses	$300,000
Administrative expenses	200,000
Total operating expenses		500,000
Income from operations		$210,000

Note: Cost of goods available for sale represents all items completed and read to sell during the period. It is calculated as beginning finished goods inventory + cost of goods manufactured from the statement of cost of goods manufactured. Income from operations is calculated as Gross Margin (also called Gross Profit) - total operating expenses.

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Accounting Principles: A Business Perspective.. Authored by: James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University.. Provided by: Endeavour International Corporation. Project: The Global Text Project.. License: CC BY: Attribution

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How to Prepare a Cost of Goods Manufactured Statement (Managerial Accounting Tutorial #24) . Authored by: Note Pirate. License: CC BY: Attribution

What is the link that connects the schedule of cost of goods manufactured?

Answer and Explanation: The link that connects the schedule of cost of goods manufactured to the schedule of cost of goods sold is the beginning and ending inventory.

How the cost of goods manufactured relates to the cost of goods sold?

Cost of goods manufactured are the production costs incurred on finished goods produced in a specific accounting period. Cost of goods sold are the production costs incurred on goods actually sold in a specific accounting period.

What is the schedule of cost of goods manufactured?

The cost of goods manufactured schedule is used to calculate the cost of producing products for a period of time. The cost of goods manufactured amount is transferred to the finished goods inventory account during the period and is used in calculating cost of goods sold on the income statement.

What is the reason for the schedule of cost of goods manufactured?

The COGM schedule was created to simplify this process. The schedule reports the total manufacturing costs for the period that were added to the work‐in‐process (WIP). It then adjusts these costs for the change in the WIP inventory account to arrive at the cost of goods manufactured.