Cost of goods manufactured is the total cost incurred by a manufacturing company to manufacture products during a particular period.

## Example

John Manufacturing Company, a manufacturer of soda bottles, had the following inventory balances at the beginning and end of 2018.

During 2018, the company purchased \$1,000,000 in raw materials and incurred \$1,600,000 in direct labor. Manufacturing overhead costs were as follows:

Required:

• Prepare a cost of goods manufactured statement

## Frequently Asked Questions

### How do you calculate the cost of goods manufactured?

The total cost incurred by a manufacturing company to manufacture products during a particular period is known as the cost of goods manufactured. This figure may be calculated by taking into account two components - raw materials purchases and conversion costs (direct labor and overhead). We can use either average costing or fifo to calculate the cost of goods manufactured. Cost of goods manufactured = raw materials purchases + conversion costs

### What is joint costs?

Joint costs are the costs of both raw materials and conversion that cannot be separated. Joint cost allocation is the process by which joint costs are assigned to particular products produced in a process or department.

### What is the prime cost method?

This method assigns all manufacturing overhead expense to Units of Production based on direct labor cost. This method is used when the overhead costs are both variable and easily attributed to production.

### What is conversion cost?

The total labor and all manufacturing costs other than direct labor are known as conversion costs. These include indirect labor, quality control inspection, indirect materials, machine setups, factory supervision etc.

### What is prime cost?

Prime cost is the total manufacturing cost excluding the value of direct materials. Prime cost can also be defined as the sum of direct labor costs, factory burden (overhead) and material conversion costs.

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