Classic Sound is a start-up company that produces vinyl records for numerous record labels worldwide. The company has two full-time employees working in the production department while the CEO splits her time 80/20% between developing new business and overseeing the production process. Information taken from the accounting records for the first three months of operations is shown below.      Beginning raw materials inventory $ 0   Purchases of raw materials 50,500   Ending raw materials inventory 25,250   Direct labour 40,450   Manufacturing overhead 30,350   Beginning work in process inventory 0   Ending work in process inventory 5,100   Purchase of production equipment 105,000   Rent for production facility 9,150

Do a schedule of cost of goods manufactured for the company for the month

Answer:

Add: Direct Materials Used                                             $25,250                            [0$ + $50,500 - $25,250)

Add: Direct Labor Used                                                  $40,450

Add: Manufacturing Overhead                                 $39,500                            [$30,350 + $9,150)

Add:  Beginning Work in Process (WIP) Inventory   $0

Deduct: Ending Work in Process (WIP) Inventory   $5,100

=COGM                                                                             $100,100 

Step-by-step explanation

The formula to calculate the COGM is:

Add: Direct Materials Used                            [Raw Materials, Beg + Raw Mats Purchases - Raw Materials, End)

Add: Direct Labor Used

Add: Manufacturing Overhead

Add: Beginning Work in Process (WIP) Inventory

Deduct: Ending Work in Process (WIP) Inventory

= COGM

Manufacturing overhead is all indirect costs incurred during the production process.  Examples of costs that are included in the manufacturing overhead category are:

• Depreciation on equipment used in the production process
• Property taxes on the production facility
• Rent on the factory building
• Salaries of maintenance personnel
• Salaries of manufacturing managers
• Salaries of the materials management staff
• Salaries of the quality control staff
• Supplies not directly associated with products (such as manufacturing forms)
• Utilities for the factory
• Wages of building janitorial staff