Cost of Goods Manufactured and Sold Statement with Actual and Applied Factory Overhead
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Financial Statements of Manufacturing Concern
Cost of Goods Manufactured and Sold Statement with Actual and Applied Factory Overhead
Direct Material:-
Materials that become integral part of finished product and that can be economically and conveniently identified with it are called Direct Material.
Direct Labour:-
Direct labour is that labour which can be readily identified with a specific job, contract or work order. It includes:
- All labour directly engaged in converting raw materials into finished goods or in altering the construction, composition or condition of the product.
- Any other form of labour which is incurred wholly or specifically for any particular job, contract or work order.
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Factory Overhead or On Cost or Indirect Cost
All material, labour and expenses which cannot be readily identified with a particular product, job or process are termed as factory overheads.
These are those overheads which are concerned with the production function. It includes indirect materials, indirect wages (labour) and indirect expenses in producing goods or services.
Factory overhead also known as “Works overhead or Manufacturing overhead or Production overhead or On Costs or indirect cost or Burden”.
Formula:-
Indirect material + indirect labour + Indirect Expenses
The cost of goods manufactured (COGM), also called cost of goods completed, calculate the total cost of goods that was produced during the period and transfer them into finished goods inventory for sale.
The cost of goods manufactured is calculated by adding the total manufacturing costs to the beginning work in process inventory and subtracting the ending goods in process inventory.
Work in Process:-
Work in process (WIP) refers to partially-completed goods that are still in the production process.
Work in process also known as “In-process inventory/ Goods-in-process/ Partially completed goods / Semi-finished goods / Uncompleted goods/Unfinished goods
Cost of Goods Sold (COGS):-
Cost of goods sold represents the sum of the all direct costs used to create a product or service which has been sold during the accounting period. The cost of goods sold (COGS), also referred to as the cost of sales or cost of services.
The cost of goods sold is calculated by adding the total Cost of goods manufactured to the beginning finished goods inventory and subtracting the ending finished goods inventory.
Finished Goods:-
Finished goods are goods that have been completed by the manufacturing process and in stock that are available for customers to purchase.
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Format of Cost of Goods Manufactured and Sold Statement with Actual Factory Overhead
Direct Material opening inventory —
Purchase of raw material —
Add: Expenses on purchases —
Less: Purchase returns —
Less: Purchase discount —
Net purchases —
Direct material available for use —
Less: Direct material closing inventory —
Direct material used —
Direct Labour —
Prime Cost —
Factory Overhead Applied —
Current Manufacturing Cost/Total Factory Cost —
Work in Process opening inventory —
Cost of goods available for manufacturing —
Work in process closing inventory —
Cost of goods manufactured —
Finished goods opening Inventory —
Cost of goods available for sale —
Finished goods closing inventory —
Cost of goods sold (normal) —
Add Under-applied overhead —
Less Over-applied overhead —
Cost of goods sold (Actual) —
Note:- When actual and applied factory overhead given in question. Then applied overhead written in format and adjustment of under or over applied overhead on the basis of actual overhead.
Working of Under-applied and Over-applied overhead
Actual Overhead —
Applied Overhead —
Under or Over applied overhead —
- Under – applied overhead:- when actual overhead greater than applied overhead.
- Over – applied overhead:- when Applied overhead greater than actual overhead.
Example:- From the following information extracted from the records of M/s Corporation for the year ending December 31st, 2017.
Rs.
Material inventory, July 1, 2012 54,000
Material inventory, June 30, 2013 34,800
Work in Process, July 1, 2012 30,000
Work in Process, July 30,2013 60,000
Finished goods, July 1, 2012 44,000
Finished goods, July 30,2013 70,000
Raw material Purchases 7,18,400
Transportation in 40,450
Purchase returns and allowance 12,350
Purchase discount 41,750
Direct labour 30 % of direct material used
Power, heat and light cost 2,000
Indirect material consumed 39,000
Depreciation on plant 3,500
Tool expenses 6,000
Indirect labour cost 3,800
Fire insurance 250
Miscellaneous manufacturing costs 500
Repairs of plant 465
Factory rent 24,000
Factory manager’s salary 18,000
Predetermined overhead rate 50% of direct labour cost
Require:- Calculate Cost of Goods Sold
Solution:-
M/s Corporation
Cost of Goods Manufactured
For the month ended December 31st, 2017
Direct Material opening inventory Rs. 54,000
Purchase of raw material Rs. 7,18,400
Add: Transportation in 40,450
Less: Purchase returns 12,350
Less: Purchase discount 41,750
Net purchases 7,04,750
Direct material available for use 7,58,750
Less: Direct material closing inventory 34,800
Direct material used 7,23,950
Direct Labour (7,23,950 x 30%) 2,17,185
Prime Cost 9,41,135
Factory Overhead Applied(2,17,185×50%) 1,08,593
Total Manufacturing Cost 1,049,728
Add: Work in Process opening inventory 30,000
Cost of goods available for manufacturing 1,079,728
Less: Work in process closing inventory 60,000
Cost of goods manufactured 1,019,728
Add: Finished goods opening Inventory 44,000
Cost of goods available for sale 1,063,728
Less: Finished goods closing inventory 74,000
Cost of goods sold (Normal) 9,89,728
Less: Over-Applied Overhead (W-N) 11,078
Cost of goods sold (Actual) 9,78,650
(W-N)
Actual Factory Overhead
Power, heat and light cost 2,000
Indirect material consumed 39,000
Depreciation on plant 3,500
Tool expenses 6,000
Indirect labour cost 3,800
Fire insurance 250
Mis manufacturing costs 500
Repairs of plant 465
Factory rent 24,000
Factory manager’s salary 18,000
Actual Factory Overhead 97,515
Actual Factory Overhead 97,515
Applied Overhead 1,08,593
Over-Applied Overhead 11,078