Question

During the month, 9,000 units of product were manufactured and 8,500 units of product were sold. On August 1, AAA Plumbing carried no inventories. (a.) Calculate the cost of goods manufactured during August and the average cost per unit of product manufactured. (b.) Calculate the cost of goods sold during August. (c.) Where in the financial statements will the difference between cost of goods manufactured and cost of goods sold be classified?

Answer 1

Answer:

(a) Calculate the cost of goods manufactured during August and the average cost per unit of product manufactured.

The answers are as follows:

Cost of goods manufactured = $432,000

Cost per unit manufactured = $48

(b)  Calculate the cost of goods sold during August.

Answer:

Cost of goods sold during August = $408,000

(c) Where in the financial statements will the difference between cost of goods manufactured and cost of goods sold be classified?

Answer:

The difference is shown in asset side in inventories section as finished goods inventory.

Workings are attached as follows:

Explanation:

(a) Calculate the cost of goods manufactured during August and the average cost per unit of product manufactured.

Cost of goods manufactured:

• The cost of goods manufactured (COGM) is also called cost of goods completed
• It calculates the total value of inventory that was produced during the period and is ready for sale.
• This is the total amount of expenses incurred to turn work in process inventory into finished goods.

How to calculate the cost of goods manufactured?

• The cost of goods manufactured equation is calculated by adding the total manufacturing costs; including all direct materials, direct labor, and factory overhead; to the beginning work in process inventory and subtracting the ending goods in process inventory.
• This formula will leave you with only the cost of goods that were completed during the period.

(b) Calculate the cost of goods sold during August.

Cost of goods sold:

• Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company.
• This amount includes the cost of the materials and labor directly used to create the good.
• It excludes indirect expenses, such as distribution costs and sales force costs.

(c) Where in the financial statements will the difference between cost of goods manufactured and cost of goods sold be classified?

When the goods are sold from the cost of goods manufactured, this leaves us with the balance of inventory (closing stock). Closing stock is the current asset and this appears in the current assets portion of Statement of Financial Position (SOFP) - known as balance sheet.

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