 Hello and welcome to this session in which we will explain what is cost of goods manufactured and how to complete the schedule of cost of goods manufacture. The schedule of cost of goods manufacture contain three types of cost which are direct material, direct labor and manufacturing overhead. This schedule will help us compute the cost of raw material used in operation as well as direct labor used in operation plus overhead applied which is manufacturing overhead applied which in turn it's going to help us compute our finished goods as well as computing cost of goods sold. So if you notice cost of goods manufacture it's going to have many many various components but at the end of the day all the cost will be in finished goods and once the finished goods sold it becomes cost of goods sold. Now in a typical cost or managerial accounting course you will see this cost of goods schedule of cost of goods manufactured in a format like this. It's a lot of numbers but we're gonna try to simplify the process so take a look at this figure and I'm gonna explain it then we'll take a look at it again and you'll see it's not as bad. So we're gonna start by raw material remember we're gonna be accounting for material labor and overhead. The problem with material is you need to compute how much material was used in operation. So how do you compute how much material used with with operation? You will start with your raw material and how much raw material did you have in beginning inventory and for the sake of illustration we're gonna assume you have ten dollars I'm gonna keep the number simple ten dollars of beginning raw material this is how much you have ten dollars worth of raw material wood. Then you purchased an additional seventy dollars worth of woods you produce tables this is what we're producing. Now beginning raw material what you started with ten dollars in wood plus seventy dollars in raw material it's gonna give you raw material available for use in production so you have eighty dollars worth of wood that you can use to produce those tables. At the end of the period you are going to deduct how much wood left over what's the ending inventory in raw material how do you know this you count how much you have left we counted how much we have left and we find out we still have five dollars well if we have eighty dollars available we only we still have five dollars it means seventy five dollars of the raw material was used in operation it means it was transferred from raw material to what to the process well that's good now we're starting to compute our manufacturing cost the first thing is raw material that we computed in step one direct material used now we still have five dollars unused which is inventory but we have to keep track of what was used and what was unused then for the sake of illustration we have one hundred dollar of labor and twenty five dollars of manufacturing overhead and the reason I have those two in a similar same color is because those two are considered conversion cost so notice now we have material labor and manufacturing overhead usually labor and manufacturing overhead usually it's giving and remember those two are called conversion costs because the term conversion costs will become very handy when we talk about process costing now when we add those all three together labor material and overhead it's going to give us total manufacturing cost incurred this period so this is the manufacturing cost we incurred this period two hundred dollars seventy five plus one hundred plus twenty five now this manufacturing cost was used in production was used in working process now for manufacturing tables we're going to have some unfinished tables at the beginning of working process and we happen to have twenty five dollars worth of tables partially completed this period we added two hundred dollars to work in process now if we started with twenty five we added two hundred dollars into the process in total we have total work in process for the period two hundred and twenty five dollars we're going to do the same thing again we're going to count how much unfinished tables we have and that's going to be our ending work in process we're going to deduct our ending work in process and whatever is not in work in process if it's not in work in process how much is that it's two fifteen well that's that's it means its cost of goods manufactured this period so this is the amount that we finished so if it's finished take it out of work in process and put it put it into finished goods now in finished goods we're going to have some tables already completed fifty dollars worth of tables we're going to add the two fifteen that we incurred this period in total we're going to have cost of goods available for sale to sixty five then again we're going to count our ending inventory ending inventory finished goods which we happen to have fifteen and that's going to keep us with cost of goods sold two hundred and fifty so notice this is how the cost flow from raw material from raw material all the way to finished goods and all the way to cost of goods sold now we happen to sell those goods for I don't know six hundred dollars it doesn't matter what we sold them for but the point is you saw how the this process work so you need to understand that this schedule is composed of many moving pieces and this is how you would see it in a typical undergraduate course so notice this is the this is the first step the raw material direct labor is giving factory overhead usually it's giving or if it's applied it's you have to use a formula then you would use what you total manufacturing cost plus beginning work in process minus ending work in process will give you cost of goods manufactured from cost of goods manufactured you could figure out cost of goods sold now most likely if you're listening to me you're either an accounting student or a CPA candidate looking for some help about this topic great you have arrived farhat lectures dot com provide you with lectures multiple choice through false questions that's going to help you in your accounting courses as well as your CPA exam I don't replace your CPA exam I'm a useful edition I can help you the reason you're watching because you are looking for some help and you found it so go a step further and subscribe connect with me on my social media linked in like this recording subscribe share it with other connect with me on Instagram Facebook Twitter and Reddit let's take a look at few examples to illustrate the computation this is what you will see in your exam an undergraduate or an on the CPA exam you need to see this process and pieces and make sure you know how to put the whole process together here we are being asked what is the cost of direct material used and questions like these can be used on farhat lectures dot com to practice beginning raw material was 30,000 this is the beginning during the month 270 was purchased so we're going to add the 270 to the beginning account at the end of the month revealed we still have 20 well if we started with 30 we purchased 70 it means we had in total 300,000 if 20 is left it means we used 280 now it doesn't mean we used all of them 100 percent maybe some of it was wasteful well it doesn't matter it's not an ending inventory it's used so the answer is 280 now again this used go to eventually work and process direct material used in production total 280 direct labor was 370 and manufacturing overhead was 185 was added during the month what is the total manufacturing cost well the total manufacturing cost would include direct labor used direct material used plus manufacturing overhead which if we add 280 if we add 280 plus 370 plus 185 if my math is right will give us 835,000 which is the cost of goods manufactured during the month now again this amount goes to work and process and from work and process some of it will end up in finished goods beginning work and process is 120 manufacturing cost added to production 835 what we computed the prior session the prior the prior slide toward 205 of partially finished goods remaining work and process what is the cost of goods manufactured during the month well we started with 120 the beginning we transferred to the process 835 so in total we should have 955 and we have left which is we did not transfer 205 which is still ending work and process and again if my math is right the answer should be 750 and that's 750 that's cost of goods manufactured during the month now what's going to happen to that cost of goods manufactured during the month it's going to go to finished goods because if it's finished from work and process look it's something like this if this is work and process and this is finished goods once it leaves work and process it goes to finished goods now it's in finished goods beginning finished goods is 120 cost of goods manufactured for the month 750 which was transferred and ending finished goods is 160 well we started with 120 this is the schedule we added to the finished goods 750 and that's going to give us 970 then ending was 160 minus 160 let's see if I have an answer here for this 970 minus 160 that's 810 let me just double check the math 120 plus 750 equal to I'm sorry 870 not 970 870 minus 160 that's 710 yes I do have an answer for this 710 and that's the cost of goods sold for the month what should you do go to farhatlectures.com and work additional multiple choice through false and practice exercises look at additional resources to help you understand this topic invest in yourself don't shortchange yourself your accounting education is a large investment take it seriously it's going to pay you dividend down the road good luck study hard and of course stay safe