 Hello, in this lecture we will define net costs of goods manufactured. According to fundamental accounting principles, wild 22nd edition, the definition of net costs of goods manufactured is total manufacturing costs, direct materials, direct labor, and factory overhead for the period plus. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Beginning work in process less Indian work in process also called costs of goods manufactured and costs of goods completed. When we're thinking about the costs of goods manufactured, we're thinking about a company that manufactures goods. So a company that creates inventory from scratch or has a production process to create inventory. When measuring the value of that inventory, then we need to not only just include the raw materials within that inventory, but the direct labor and the factory overhead, the conversion costs, the things that we needed in order to transpose that raw material to the ending process, the ending inventory. Whenever thinking of inventory, it's useful to think about the components of inventory being not just the materials, but the direct labor and the overhead because those are really oftentimes some of the most expensive components of the materials that we are making of the inventory that we are consuming, whether we purchase it or whether we are producing it somewhere along the production process along that line. Part of the value of that inventory will of course include not just the materials, but the direct labor and the factory overhead. If we are in the production process, we will have to track those as we go. So in this case, we have the statement here of the net costs of goods manufactured and that will be needed in order to help us calculate the cost of goods sold calculation. Don't get those two completely confused. Cost of goods sold is calculated as the beginning inventory plus purchases if it was if we were just buying inventory. But now we're going to say plus net cost of goods manufactured that will give us the goods available minus the ending inventory for cost of goods sold. We need this worksheet in order to get us the replacement of purchases being net costs of goods manufactured. This worksheet is going to give us the raw materials. We're going to have to calculate the raw materials, the direct labor, the factory overhead generally for the month or the year, the time period. And that will give us our total. Then if we had any beginning and ending inventory, we would have to account for that. So this is what we did during the month. In this case, there's nothing here. But if we had any beginning inventory that was still in process at the beginning, we would add that then we would have the amount available. And then we would subtract out anything that's still in work and process at the end, not yet completed. And that would give us the net cost of goods manufactured. That net cost of goods manufactured then being the major component in the calculation of cost of goods sold.