Manufacturing Costs
These are costs that are incurred when the process of production is in progress. They include: raw materials costs, both direct and indirect labor costs, and the other overheads in the process of manufacturing(Bragg, 2019). They are costs that are always presented in the income statements, to represent a line of separate item entity.
Prime Costs and Conversion Costs
They act as metrics to determine efficiency during the production process. Prime costs are costs that are expenditures incurred directly in the process of creating a finished good(Bragg & Bragg, 2019). While the value of the conversions refers to the expenses that are born in the process of turning raw materials into a specific product.
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Products and period costs
Product costs are incurred by businesses only if they acquired their products or produce in that they end up to record in the inventory asset. While period costs are costs that a company incur when time passes during the production process.
Cost of goods manufactured and Cost of Goods Sold
It is calculated by adding all the manufacturing costs, which are: direct raw materials costs, labor, and overhead. Therefore, the costs get to be added to the beginning of inventory and then subtracting ending or closing goods in the process of stock. It equals the amount of stock transferred in the products during the process of products in the process of stock (Christensen et al., 2013) . The cost of goods sold is calculation is done through taking the inventory’s beginning and adding it to the purchases and then subtracting the ending inventory. It is used in the calculation of gross profit.
S chedule of cost of goods manufactured and a manufacturing income statement
Jackson and Sons Company
Statement of Cost of Goods manufactured
For the year ended December 31
Direct materials
Inventory of Raw materials on 1 st January $20000
Purchases of Raw materials $440000
Less: Inventory of raw materials, 31 st December 30000
Raw materials used $430000
Direct materials Used $430000
Direct labor $300000
Manufacturing Overhead:
Maintenance and repairs Expense $50000
Indirect Labor $100000
Factory utilities Expense $10,000
Depreciation Expenses-Factory building $15,000
Other Expenses at the factory $5,000
Total Overhead $180,000
Total Manufacturing cost $910,000
Add: Work in Process Inventory, 1 st January $20,000
Less: Work in Process Inventory, December 31 -$40,000
Cost of goods manufactured $890,000
Income statement
Jackson and Sons Company
Income Statement
For the year ended December 31
Sales $2,950,000
Cost of goods sold:
Finished goods inventory, January 1 $40,000
Cost of goods manufactured $890,000
Cost of goods available for sale $1,001,000
Less: Finished Goods Inventory, December 31 $50,000
Cost of goods sold $1,881,000
Gross margin $1,069,000
Operating Expenses:
Selling Expenses $280,000
Administrative Expenses $250,000
Total Expenses $530,000
Income from the operations $1,160,000
References
Bragg, s. (2019). Manufacturing Cost. Retrieved 9 December 2019, from https://www.accountingtools.com/articles/2017/5/9/manufacturing-costs
Bragg, S. (2019). The difference between product costs and period costs — Accounting Tools. Retrieved 9 December 2019, from https://www.accountingtools.com/articles/the-difference-between-product-costs-and-period-costs.html
Christensen, T., Cottrell, D., & Baker, R. (2013). Advanced financial accounting . McGraw-Hill.
