 Hello, in this lecture we will define cost of goods manufactured according to fundamental accounting principles while the 22nd edition, the definition of costs of goods manufactured is total manufacturing costs, direct materials, direct labor and factory overhead for the period plus beginning work in process, less ending work in process, also called net costs of goods manufactured and cost of goods completed. And we are considering the 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. The cost of goods manufactured, we are typically talking about a manufacturing company meaning a company that is manufacturing the inventory rather than purchasing and selling the inventory and therefore needs to track the costs of direct materials, direct labor, factory overhead, the costs of inventory. Whenever considering inventory, whether we're purchasing it or making it, it's useful to consider the fact that we have not just the raw materials in that inventory, but the conversion costs, the direct labor, the factory overhead. This is going to be a statement of cost of goods manufactured. The statement of cost of goods manufactured being necessary in order to track those materials, labor overhead of the inventory also necessary to get to the cost of goods manufactured used in the calculation of cost of goods sold. So don't get those two formulas confused. The cost of goods sold versus the cost of goods manufactured. They sound similar, but the cost of goods sold is going to be gaining inventory and plus purchases. If we were to purchase the inventory, however, if we're making the inventory, we're going to add to it the cost of goods manufactured gives us the cost of goods available minus the Indian inventory. That's the calculation of cost of goods sold. We need this cost of goods manufactured in order to calculate the cost of goods sold using that formula. Components of cost of goods manufactured will be the raw materials, the direct labor, the factory overhead. These components will typically be calculated for the month or the year, the time period, and that will give us the total manufacturing costs for that time period. If we had any work in process at the beginning or the end, we would then have to account for this. So in this case, we don't have any, but we would have the total manufacturing costs for the month or year, plus the work in process at the beginning gives us the amount available minus the stuff that's still in work in process will then give us the cost of goods that have been manufactured and that can then be used in the cost of goods sold calculation.