Cost of goods manufactured, income statement, manufacturing...

Cost of goods manufactured, income statement, manufacturing company. Consider the following account balances (in thousands) for the Peterson Company:$$\begin{array}{lcc} & \text { Beginning of } & \text { End of } \\ \text { Peterson Company } & \mathbf{2 0 1 7} & \mathbf{2 0 1 7} \\ \hline \text { Direct materials inventory } & 21,000 & 23,000 \\ \text { Work-in-process inventory } & 26,000 & 25,000 \\ \text { Finished-goods inventory } & 13,000 & 20,000 \\ \text { Purchases of direct materials } & & 74,000 \\ \text { Direct manufacturing labor } & & 22,000 \\ \text { Indirect manufacturing labor } & & 17,000 \\ \text { Plant insurance } & & 7,000 \\ \text { Depreciation - plant, building, and equipment } & & 11,000 \\ \text { Repairs and maintenance-plant } & & 3,000 \\ \text { Marketing, distribution, and customer-service costs } & & 91,000 \\ \text { General and administrative costs } & & 24,000 \end{array}$$ 1. Prepare a schedule for the cost of goods manufactured for 2017 . 2. Revenues for 2017 were $\$ 310$ million. Prepare the income statement for 2017 .

Cost of goods manufactured, income statement, manufacturing company. Consider the following account balances (in thousands) for the Peterson Company:$$\begin{array}{lcc}
& \text { Beginning of } & \text { End of } \\
\text { Peterson Company } & \mathbf{2 0 1 7} & \mathbf{2 0 1 7} \\
\hline \text { Direct materials inventory } & 21,000 & 23,000 \\
\text { Work-in-process inventory } & 26,000 & 25,000 \\
\text { Finished-goods inventory } & 13,000 & 20,000 \\
\text { Purchases of direct materials } & & 74,000 \\
\text { Direct manufacturing labor } & & 22,000 \\
\text { Indirect manufacturing labor } & & 17,000 \\
\text { Plant insurance } & & 7,000 \\
\text { Depreciation - plant, building, and equipment } & & 11,000 \\
\text { Repairs and maintenance-plant } & & 3,000 \\
\text { Marketing, distribution, and customer-service costs } & & 91,000 \\
\text { General and administrative costs } & & 24,000
\end{array}$$
1. Prepare a schedule for the cost of goods manufactured for 2017 .
2. Revenues for 2017 were $\$ 310$ million. Prepare the income statement for 2017 .

Key Concepts

Cost of Goods Manufactured

This concept refers to the total production cost of goods that have been completed during an accounting period. It includes the direct costs such as direct materials and direct labor, as well as applied manufacturing overhead. The calculation adjusts for the changes in work-in-process inventory, providing an important figure used to determine the cost of goods sold.

Income Statement in a Manufacturing Context

The income statement for a manufacturing company is designed to reflect the specific cost structures involved in production. It includes revenues as well as the cost of goods sold, which is derived from the cost of goods manufactured and adjusted by the changes in finished goods inventory. This statement provides insight into both the gross margin generated from production and the overall profitability after accounting for operating expenses.

Direct Materials

Direct materials are the raw materials that are directly traceable to the finished product. In production costing, the calculation of materials used involves taking the beginning materials inventory, adding materials purchased during the period, and subtracting the ending materials inventory. This step is critical because it directly affects the overall cost of goods manufactured.

Direct Manufacturing Labor

Direct manufacturing labor constitutes the wages paid to workers who are directly involved in the production of goods. This cost is directly attributable to individual products and is a key component of the total manufacturing cost, making it an essential element in both the calculation of cost of goods manufactured and the overall assessment of production efficiency.

Manufacturing Overhead

Manufacturing overhead includes all production costs that cannot be directly traced to specific units of production. It encompasses indirect costs such as indirect labor, plant depreciation, utilities, maintenance, and insurance related to the production facility. Manufacturing overhead is allocated to products, and its accurate computation is crucial for determining the full production cost.

Inventory Accounts in Manufacturing

Inventory accounts such as direct materials inventory, work-in-process (WIP) inventory, and finished goods inventory are vital for calculating production costs and financing requirements. The changes in these inventories directly impact the cost of goods manufactured and cost of goods sold, making them fundamental in understanding the flow of costs through the production process.

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