Financial statement issues that are unique to manufacturers, Cost Accounting

Financial Statement Issues that are Unique to Manufacturers

Different from the retailers, manufacturers have three exclusive inventory category:
1) Raw Materials,
2)Work in Process,
 3)Finished Goods.
 Below is the inventory section from balance sheet of the actual company:











For the given company, observe that the finished goods are small piece of the whole inventory. Finished goods represent the cost of the completed products awaiting sale to the customer. But, this company has much significant amount of raw materials (the components which will be used in manufacturing the units which are not yet started) and work in process. Work in process is an account most in requirement of clarification. This account is for goods which are in production but not yet complete; it comprises an accumulation of monies spent on the direct material which is the raw materials which have been put into production such as direct labour, and applied manufacturing overhead.

Your previous studies should have ingrained these formulations:

Beginning Inventory + Purchases = Cost of Goods Available for the Sale
and the Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold.
If you require a refresher, look at the Current Assets book. Certainly, these relations were essential to calculate the cost of goods sold for the company with only one category of the inventory.

For the producer with the three inventory categories, these "logical" formulations should take on the recurring nature for each and every category of the inventory. Typically, this entails to elaborated set of calculations/ schedules for each of the respective inventory categories. Don't be intimidated by the number of the schedules, as they are all based on the similar concept.

Posted Date: 7/21/2012 3:41:18 AM | Location : United States

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