MGT 5 Lecture Notes - Lecture 2: Income Statement
12 Oct 2018
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For HW -- pgs 28-29
Cost of Goods Sold
● RM -- raw materials inventory
● WIP -- work in progress inventory
● All inventory is an asset until sold, then it’s a cost to revenue
● Cost to goods sold -- dollar amount leaving finished goods inventory and going to the
income statement as an expense
● COGM -- cost of goods manufactured
○ Different
● COGS formula isn’t just for seeing how much you made (analyzing finished goods), but
also to see where your money goes
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Problem
BEG RM 10,500 WIP BEG 31,000 FG BEG 41,000
RM BUYS 32,000 DL 52,000 FG END 45,000
END RM 11,700 OLH 29,000
END WIP 33,000
RM WIP FG
BEG 10,500 BEG 31,000 BEG 41,000
+BUYS 32,000 RM 30,800 +ADDS 109,800
AVAIL 42,500 DL 52,000 GAFS 150,800
-END 11,700 OLH 29,000 -END 45,000
TO 30,800 AVAIL 142, 800 COGS 105,800
-END 33,000
COGM 109,800
**TO = transferred out
● RM TO means that that money/asset was transferred to the work in progress
● WIP calculations take into account the costs of the raw materials, direct labor, and
overhead costs
● Overhead is an indirect cost, it’s different from RM and DL
○ Kind of a problem because you can never be sure what goes into it
● COGM is the dollar amount associated with the units that have been completed
● There could be more additions in FG, but we try to get them all out in WIP
● COGS goes on the income statement, not the balance sheet
○ Sales - COGS = gross profit
○ To get net income, you also have to subtract nonmanufacturing costs
● Ending costs
○ Leftover materials from the year before
○ They get subtracted because you don’t need to buy new ones
Reconciliation
Document Summary
All inventory is an asset until sold, then it"s a cost to revenue. Cost to goods sold -- dollar amount leaving finished goods inventory and going to the income statement as an expense. Cogs formula isn"t just for seeing how much you made (analyzing finished goods), but also to see where your money goes. Rm to means that that money/asset was transferred to the work in progress. Wip calculations take into account the costs of the raw materials, direct labor, and overhead costs. Overhead is an indirect cost, it"s different from rm and dl. Kind of a problem because you can never be sure what goes into it. Cogm is the dollar amount associated with the units that have been completed. There could be more additions in fg, but we try to get them all out in wip. Cogs goes on the income statement, not the balance sheet. To get net income, you also have to subtract nonmanufacturing costs.
