1. Materials inventory is the raw materials used to make a product. An example would be the wood needed to make furniture.

2. Work in process inventory is a partially completed product. An example would be the furniture we mentioned above. It would be a work in process inventory item if work was still needed to be done on it before it was ready for sale to customers.

3. Finished goods inventory is the completed or finished product that is ready to sell to customers.

4. Direct labor is the costs related to the employees that make the product. The salary of a supervisor, who does not work directly on the product, would not be included in direct labor costs.

5. Manufacturing overhead is costs that do not go in any of the other categories. The supervisors' salary that I mentioned in number 4 above would be a manufacturing overhead cost and not a direct labor cost.

A good example of the flow of the above listed costs for a manufacturing company is shown in Exhibits 16-5 & 16-6 on pages 730 & 731 of your textbook. When we have the dollar amounts for the accounts listed above, then the accountant can complete a Schedule of the Cost of Finished Goods Manufactured as shown below:

ATLANTIC, INC.

SCHEDULE OF THE COST OF FINISHED GOODS

FOR THE YEAR ENDED DECEMBER 31, 2020

W.I.P., beginning $50,000

Manf. costs:

Direct materials 200,000

Direct labor 400,000

Manf. Overhead 300,000

_______

Total of all W.I.P. $950,000

Less: W.I.P.,ending(60,000)

______

C. of F.G.M. $890,000