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Cost Flows The cost of goods manufactured is the total of the product costs incurred for the units completed during the current period. It is not an expense, like the cost of goods sold. The cost of goods manufactured is stored in , which Direct Materials is account. As units are sold, the cost of the units is then a liability 1. 2. 3. 4. 5. 6. 7. 8. 9. recorded asCost of Goods Sold. The flow of the product costs is demonstrated in the linked example and summary below. A cost of goods manufactured schedule is an internal schedule that is used to calculate the cost of producing the completed units during the period. It uses models very similar to the cost of goods sold model and summarizes the flows of the product costs. A separate cost of goods sold schedule (which presents the cost of goods sold model) for the period may also be prepared or incorporated directly into the income statement. Example: This example illustrates how costs flow through the inventory accounts. The inventory accounts have a debit balance at the beginning of the period. (It is possible that the beginning balance is zero.) Purchases are made during the period which increases Direct Materials. Materials used in production causes Direct Materials to decrease and Work in Process to increase. Direct labor is used in the production process which increases Work in Process. Overhead is increased as actual overhead costs are incurred. Overhead is applied, which decreases Overhead and increases Work in Process. As units are completed, the costs for the units are transferred from Work in Process to Finished Goods. As units are sold, Finished Goods decreases and Cost of Goods Sold increases. The ending balances in Direct Materials, Work in Process, and Finished Goods can be determined. Other than Cost of Goods Sold, the accounts used to record the flow of product costs are all inventory accounts. The previous example illustrates how the costs are simply transferred from one inventory account to the next. The costs become an expense, Cost of Goods Sold, when completed units are sold to customers. APPLY THE CONCEPTS: Calculate the cost of goods manufactured and prepare the schedule The following T accounts illustrate the product cost flows for See Clearly Co. Use the T accounts to answer the following questions (beginning balances are indicated with "Bal"). Raw Materials Bal 15,600 62,400 71,760 6,240 Manufacturing Overhead 132,682 132,600 82 Bal Work in Process 23,400 71,760 101,400 132,600 297,960 31,200 Bal Finished Goods 12,480 297,960 310,440 Purchases of direct materials are recorded with a to credit Direct Materials. Direct materials used in production are recorded with a debit to Work in Process and a to Direct credit Materials. Direct labor is recorded with a to Work in Process. debit Applied overhead is recorded with a to Work in credit Process and a to Overhead. credit Costs for the units that have completed the production process are recorded with to Work in Process and a a credit credit to Finished Goods. What is the cost of units that were completed during the period? $ Hide Using the data from the T accounts, complete the cost of goods manufactured schedule. See Clearly Co. Schedule of Cost of Goods Manufactured For the Year Ended December 31, 20X1 Raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured APPLY THE CONCEPTS: Calculate the cost of goods sold and prepare the schedule The following T accounts illustrate the product cost flows for See Clearly Co. Use the T accounts to answer the following questions (beginning balances are indicated with "Bal"). Finished Goods Bal 12,480 297,960 301,080 9,360 Cost of Goods Sold 301,080 Costs for the units that have been sold are recorded with a credit to Finished Goods and a to Cost of credit Goods Sold. What is the amount to be reported on the income statement as the company's expense for the items sold to its customers? $ Hide Using the data from the T accounts, complete the cost of goods manufactured for See Clearly Co. schedule. See Clearly Co. Schedule of Cost of Goods Sold For the Year Ended December 31, 20X1 Beginning finished-goods inventory $ Cost of goods available for sale $ Cost of goods sold $