Page 734 - Accounting Principles (A Business Perspective)

18. Managerial accounting concepts/job costing

on the next page, we show the income statement for Farside Manufacturing Company. Notice in Exhibit 142 the
relationship of the statement of cost of goods manufactured to the income statement.

Exhibit 140: Relationship of cost to manufacture, cost of goods manufactured, and
cost of goods sold

Farside manufactured company
Statement of cost of goods
manufactured
For the year ended 2010 December 31
Direct materials
Materials inventory, January 1 $ 40,000
Materials purchases 480,000
Materials available for use $520,000
Less: Materials inventory, December 31 30,000
Materials used $490,000
Direct labor 380,000
Manufacturing overhead
Indirect labor $ 120,000
Maintenance and repairs expense 60,000
Factory utilities expense 10,000
Depreciation expense – factory building 20,000
Depreciation expense – factory equipment 30,000
Other expense – factory 20,000
Total manufacturing overhead 260,000
Cost to manufacture $1,130,000
Add: Work in process inventory, January 1 30,000
$1,160,000
Less: Work in process inventory, December 60,000
31
Cost of goods manufactured $1,100,000
Exhibit 141: Statement of cost of goods manufactured
The cost of goods manufactured appears in the cost of goods sold section of the income statement. The cost of
goods manufactured is in the same place that purchases would be presented on a merchandiser's income statement.
We add cost of goods manufactured to beginning finished goods inventory to derive cost of goods available for sale.
This is similar to the merchandiser who presents purchases added to beginning merchandise to derive goods
available for sale.

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