In the Schedule of Cost of Goods Manufactured and Cost of Goods Sold, the cost o
ID: 2605815 • Letter: I
Question
In the Schedule of Cost of Goods Manufactured and Cost of Goods Sold, the cost of goods manufactured is computed according to which of the following equations?
Multiple Choice
Cost of goods manufactured = Total manufacturing costs + Beginning finished goods inventory – Ending finished goods inventory
Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory – Ending work in process inventory
Cost of goods manufactured = Total manufacturing costs + Ending work in process inventory – Beginning work in process inventory
Cost of goods manufactured = Total manufacturing costs + Ending finished goods inventory – Beginning finished goods inventory
Explanation / Answer
In the Schedule of Cost of Goods Manufactured and Cost of Goods Sold, the cost of goods manufactured is computed according to the following formula
Reasons
1. Total manufacturing costs is added as it is obvious that current year cost includes the manufacturing cost.
2. Beginning work in process inventory is added as it is the unfinished stock of good at the starting, on which further manufacturing is to be done to manufacture, the cost of which is included in 1.
3. 'Ending work in process inventory' is subtracted as this repressents the Work in process items which has not been fully manufacture in the current year.
Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory – Ending work in process inventory