Cost of Goods Manufactured Statement:
Definition and Explanation:
Cost of goods manufactured is the total cost of
goods completed during the period.
Manufacturing companies transform raw material into
finished goods through the use of labor and factory
facilities. For example, a company manufacturing
furniture from wood or timber. The income statement
prepared by a manufacturing company requires the
calculation of cost of goods manufactured. But
merchandising companies need no calculation of cost
of goods manufactured because they do not
manufacture products but buy the products
manufactured by some other company and resell them
at a profit.
Usually cost of goods manufactured becomes part of
the cost of goods sold statement. However, a
separate schedule of cost of goods manufactured may
also be prepared.
Formula:
Cost
of goods manufactured (COGM) may also be expressed
in the form of an equation. This equation is
sometime referred to as COGM formula:
Cost of goods manufactured = Direct
materials used + Direct labor used + Factory
overhead + Work in process opening inventory
- Work in process closing inventory |
Example:
Cost of
Goods manufactured Statement
For the year ended December 31, 2005
Direct
Materials: ( Section 1) |
|
|
|
Materials inventory, January 1, 2005 |
|
1572400 |
|
Purchases |
8420000 |
|
|
Less
purchases returns and allowances |
42,000 |
8378000 |
|
|
|
|
|
Materials available for use |
|
9950400 |
|
Less
materials inventory, December 31,
2005 |
|
1270600 |
|
|
|
|
|
Direct
materials consumed |
|
|
8679800 |
Direct
labor ( Section 2) |
|
|
7346400 |
Factory overhead: ( Section 3) |
|
|
|
Indirect labor |
|
1329300 |
|
Salaries |
|
972000 |
|
Payroll taxes |
|
489000 |
|
Power |
|
112000 |
|
Heat |
|
69200 |
|
Light |
|
44300 |
|
Factory supplies |
|
50000 |
|
Depreciation - factory building |
|
68300 |
|
Depreciation - machinery |
|
403000 |
|
Repairs and maintenance |
|
145800 |
|
Patent amortization |
|
33200 |
|
Tools and dies used |
|
178600 |
|
Insurance on building and machinery |
|
21200 |
|
|
|
|
|
|
|
|
3915900 |
|
|
|
|
Total
manufacturing cost |
|
|
19942100 |
Add
work in process inventory, January 1
2005. ( Section 4) |
|
|
2338000 |
|
|
|
|
Total
cost to be accounted for |
|
|
22280100 |
Less
work in process inventory, December
31 2005. |
|
|
1303200 |
|
|
|
|
Cost
of goods manufactured |
|
|
20976900 |
|
|
|
|
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