Manufacturing Cost Calculations Guide
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Koki HabadiManufacturing Cost Calculations Guide
Uploaded by
Koki HabadiCommon questions
Powered by AITo determine the total manufacturing costs incurred in 2014 for Myles Manufacturing Company, you sum the direct labor costs, manufacturing overhead, and the cost of raw materials used. This involves calculating the cost of raw materials used as the beginning inventory plus purchases minus the ending inventory: $520,000 + $900,000 - $620,000 = $800,000 for raw materials used. Then add direct labor costs ($1,000,000) and manufacturing overhead ($960,000): $800,000 + $1,000,000 + $960,000 = $2,760,000 .
Accurate financial reporting requires understanding inventory types (raw materials, work-in-process, finished goods) and tracking their flow through the production cycle. Use the cost flow equation (beginning inventory + additions - ending inventory = cost of goods) for each inventory category alongside a job or process costing system to allocate costs correctly for precise COGS and ending inventory figures .
The cost of goods sold (COGS) is calculated as the beginning inventory of finished goods plus cost of goods manufactured minus ending inventory of finished goods. Using Sandor Manufacturing's data: COGS = $138,000 (beginning finished goods) + $1,740,000 (cost of goods manufactured) - $150,000 (ending finished goods) = $1,728,000 .
To calculate the total raw materials available for use during 2014 for Myles Manufacturing Company, you add the beginning raw materials inventory to the raw materials purchased during the year. Specifically, it would be $520,000 (beginning inventory) + $900,000 (raw materials purchased) = $1,420,000 .
The cost of goods sold (COGS) is calculated as the beginning balance of finished goods plus the cost of goods manufactured, minus the ending balance of finished goods. For Fisher Corporation: $52,000 (beginning finished goods) + $129,000 (manufactured) - $35,000 (ending finished goods) = $146,000 COGS for January .
Product costs include all costs required to manufacture a product, categorized as direct materials, direct labor, and manufacturing overhead. Period costs are non-manufacturing costs that are expensed in the period incurred, such as selling and administrative expenses. By classifying each cost in the Machowski Corporation’s listing, the product costs are summed separately from period costs .
Prime costs are calculated by adding direct material and direct labor costs. If direct labor is $13,000 and represents 20% of the prime cost, total prime cost can be calculated as $13,000/0.2 = $65,000 .
To separate costs into product and period costs, analyze the nature of each cost. Product costs include direct materials, direct labor, and overhead tied to production. Period costs, such as administrative salaries and office rent, do not directly tie to production and are expensed in the period incurred. By categorizing costs this way, you can determine the totals for both types of expenditures .
Prime costs consist of direct materials and direct labor. If direct labor costs are $13,000 and they constitute 20% of prime costs, then prime costs are $65,000 (since $13,000 is 20% of $65,000). The total manufacturing costs ($88,000) minus prime costs ($65,000) equals manufacturing overhead, which is $23,000 .
To calculate the cost of raw materials used, add the beginning inventory to purchases, then subtract the ending inventory. For Fisher Corporation: $26,000 (beginning balance) + $76,000 (purchased) - $21,000 (ending balance) = $81,000 worth of raw materials used in production during January .