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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
     

Relevant Articles:

Income statement
Cost of Goods Sold Statement
Cost of Goods Manufactured Statement
Balance Sheet - Report Form
Difference between Income Statement and Trading and Profit and Loss Account
Adjustments and their Effect on Financial Statements
Evaluation of Financial Statements

 

 

 

 

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Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Accounting Dictionary
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  Variable Costing System
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  Activity Based Costing System
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 
 

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