Question

What are the similarities in calculating the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold?

Answer 1

Solution. An organization operating needs to record and report different financial statements in order to survive and meet its pre-determined objectives of profit making and avoid unforeseen losses. In order to operate on profit margin, organization needs to calculate and budget in advance to generate determined revenues.

Cost of Goods Manufactured includes organization's dealing in manufacture of goods and involves direct material and direct labor used in the process and overhead cost. Relationship between Cost of Goods Manufactured and Cost of Goods Sold is written down:

Beginning Inventory + Cost of Goods Manufactured - Ending Inventory = Cost of Goods Sold

Initial Inentory + Direct Materials + Direct Labor + Overhead - Closing Inventory = Cost of Goods Manufactured

Similarities in calculating such costs are cost of materials include beginning material balance added to any purchase s made and the closing amount transferred to calculation of cost of goods used during production involves addition of direct materials, direct labor and fixed & variable manufacturing overhead cost which when sold generates revenue to the organization during an accounting period and refers to the cost of goods sold.