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Lesson 1: Course Orientation and Defining Managerial Accounting

Determining Cost of Goods Sold 

The income statements for merchandising and manufacturing companies, shown in Figure 1.2, are the same.

The difference, however, is determining the cost of goods sold (COGS). In a merchandising company it is what the company pays its suppliers for the merchandise. In a manufacturing company, calculating COGS is a little more difficult and involves a number of steps.

Figure 1.2. Basic Income Statement
Net Sales
     Cost of Goods Sold
Gross Profit
Gross Profit
    Operating Expenses
Net Income

 

 

 

 

 

 

 

 

COGS Guided Example
Here's an example of determining COGS for a manufacturing company. Figure 1.3 contains the sample business information you will use over the next few pages of this lesson.   
Figure 1.3. Example Business Information
Beginning Direct Materials Inventory$ 450,000
Ending Direct Materials Inventory$ 420,000
Direct Materials Purchases$ 750,000
Beginning Work in Process Inventory$ 200,000
Ending Work in Process Inventory$ 300,000
Direct Labor$ 300,000
Factory Overhead$ 150,000
Beginning Finished Goods Inventory$ 400,000
Ending Finished Goods Inventory$ 350,000
 

 


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