{"id":64,"date":"2021-01-26T21:55:20","date_gmt":"2021-01-26T21:55:20","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=64"},"modified":"2021-07-09T18:12:51","modified_gmt":"2021-07-09T18:12:51","slug":"cost-of-goods-sold","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/cost-of-goods-sold\/","title":{"raw":"Cost of Goods Sold","rendered":"Cost of Goods Sold"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Create cost statements for a manufacturing company<\/li>\r\n<\/ul>\r\n<\/div>\r\nWhen manufactured items are sold, their costs are removed from the Finished Goods inventory account and transferred to the Cost of Goods Sold expense account on the income statement. Cost of Goods Sold represents the amount a company paid for the manufactured items that it sold. Cost of Goods Sold is matched with Sales on the first two rows of the income statement. The difference between Sales and Cost of Goods Sold is <strong>gross profit<\/strong>, which is the amount of markup on the manufactured goods.\r\n\r\nIf our product costs us $395 to manufacture, and we sell it for $555, we are making a gross profit of $160 per unit. That is our markup, and it goes to cover period costs, such as selling and general and administrative expenses, including taxes. Anything left over is profit.\r\n\r\n<img class=\"alignnone wp-image-670\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/11185852\/1.3.1-Cost-of-Goods-Manufactured1-300x141.png\" alt=\"Flow chart for balance sheet and income statement that summarizes the work flow\" width=\"723\" height=\"340\" \/>\r\n\r\nThe <strong>Cost of Goods Sold<\/strong> amount on the income statement is determined by considering the changes in the three inventory account balances during the period. The elements of its calculation contain important information for managers, but they are too detailed and lengthy to present directly on the income statement. Therefore, a separate statement of cost of goods sold is prepared to show the details of the calculations. The final cost of goods sold amount from the statement of cost of goods sold is what appears on the income statement.\r\n\r\nLet\u2019s review the schedule of cost of goods manufactured:\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>ABC Manufacturing Company\r\nSchedule of Cost of Goods Manufactured\r\nMonth Ended July 31, 2021<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning Work-in-Process Inventory<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 66,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Materials Used:<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning Direct Materials<\/td>\r\n<td class=\"r\">$ 12,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Purchases of Direct Materials (including Freight In)<\/td>\r\n<td class=\"r\">160,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Materials Available for Use<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>172,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending Direct Materials<\/td>\r\n<td class=\"r\">(5,000)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Materials Used<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>167,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Labor<\/td>\r\n<td class=\"r\">88,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Manufacturing Overhead<\/td>\r\n<td class=\"r\">90,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Manufacturing Costs Incurred during the Year<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">345,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Manufacturing Costs to Account For<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>411,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending Work-in-Process Inventory<\/td>\r\n<td><\/td>\r\n<td class=\"r\">(16,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Manufactured<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$395,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nOur beginning dollar amount for finished goods inventory is based on last month\u2019s ending inventory. Let\u2019s say that last month, our unit cost was $400 and we had 60 units on hand. The total cost of inventory on June 30 at midnight was $24,000 (400 * 60).\r\n\r\nTherefore, the total cost of finished goods inventory at the start of business on July 1 was $24,000.\r\n\r\nIf our unit cost was $395 for the month of July, and at the close of business on July 31 we count 90 units on hand, then our July 31 ending inventory at cost is $35,550 (395 * 90).\r\n\r\nUsing this formula\u2014\r\n<p style=\"text-align: center;\">Costs of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured \u2013 Ending Finished Goods Inventory\r\n\r\nWe calculate cost of goods sold as follows:<\/p>\r\n\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>ABC Manufacturing Company\r\nSchedule of Cost of Goods Sold\r\nMonth Ended July 31, 2021<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Blank Column<\/th>\r\n<th scope=\"col\">Blank Column<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning Finished Goods Inventory<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>$ 24,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Manufactured<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">395,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Available for Sale<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>419,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending Finished Goods Inventory<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">(35,550)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Sold<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 383,450<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nTo make the manufacturer\u2019s income statement more understandable to readers of the financial statements, financial accountants do not show all of the details that appear in the Cost of Goods Manufactured statement.\r\n\r\nWe are assuming in this case that we sold all 60 of the units we had on hand at the beginning of the month (called the FIFO assumption -- First-in, First-out).\r\n\r\nLet\u2019s reconcile our calculation just to make sure we got it right.\r\n\r\nIf we started with 60 units, completed 1,000, and then had 90 left, we must have sold 970.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Blank Column<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning Finished Goods Inventory<\/td>\r\n<td><\/td>\r\n<td class=\"r\">60<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goods Manufactured<\/td>\r\n<td><\/td>\r\n<td class=\"r\">1,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goods Available for Sale<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>1,060<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending Finished Goods Inventory<\/td>\r\n<td><\/td>\r\n<td class=\"r\">(90)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goods Sold<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>970<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nOf those 970 units we sold, 60 were on hand at the beginning of the month at a cost of $400 each, and the other 910 were from July production at $395 per unit.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Blank Column<\/th>\r\n<th scope=\"col\">Units of Inventory<\/th>\r\n<th scope=\"col\">Price Per Unit<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning inventory sold<\/td>\r\n<td><\/td>\r\n<td class=\"r\">60<\/td>\r\n<td class=\"r\">$ 400<\/td>\r\n<td class=\"r\">$ 24,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>July inventory sold<\/td>\r\n<td><\/td>\r\n<td class=\"r\">910<\/td>\r\n<td class=\"r\">$ 395<\/td>\r\n<td class=\"r\">359,450<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>970<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 383,450<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s take a look at how this might look on the financial statements for our company.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>ABC Manufacturing Company\r\nIncome Statement\r\nMonth Ended July 31, 2021<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td class=\"r\">$ 538,350<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of goods sold<\/td>\r\n<td class=\"r\">383,450<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>154,900<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, general, and administrative expenses<\/td>\r\n<td class=\"r\">95,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income before taxes<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>59,900<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income tax expense<\/td>\r\n<td class=\"r\">20,366<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 39,534<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nFor now, it\u2019s enough to understand that managerial accountants track production costs and transfer those costs from account to account based on each stage of completion. This information is critical to managers in manufacturing companies who make purchasing decisions, determine selling prices, prepare sales budgets, and schedule production. We\u2019ll address the question of exactly HOW costs are assigned to each product during the manufacturing process in later modules on process and job costing, but first, check your understanding of the flow of costs.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]217914[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Create cost statements for a manufacturing company<\/li>\n<\/ul>\n<\/div>\n<p>When manufactured items are sold, their costs are removed from the Finished Goods inventory account and transferred to the Cost of Goods Sold expense account on the income statement. Cost of Goods Sold represents the amount a company paid for the manufactured items that it sold. Cost of Goods Sold is matched with Sales on the first two rows of the income statement. The difference between Sales and Cost of Goods Sold is <strong>gross profit<\/strong>, which is the amount of markup on the manufactured goods.<\/p>\n<p>If our product costs us $395 to manufacture, and we sell it for $555, we are making a gross profit of $160 per unit. That is our markup, and it goes to cover period costs, such as selling and general and administrative expenses, including taxes. Anything left over is profit.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-670\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/11185852\/1.3.1-Cost-of-Goods-Manufactured1-300x141.png\" alt=\"Flow chart for balance sheet and income statement that summarizes the work flow\" width=\"723\" height=\"340\" \/><\/p>\n<p>The <strong>Cost of Goods Sold<\/strong> amount on the income statement is determined by considering the changes in the three inventory account balances during the period. The elements of its calculation contain important information for managers, but they are too detailed and lengthy to present directly on the income statement. Therefore, a separate statement of cost of goods sold is prepared to show the details of the calculations. The final cost of goods sold amount from the statement of cost of goods sold is what appears on the income statement.<\/p>\n<p>Let\u2019s review the schedule of cost of goods manufactured:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>ABC Manufacturing Company<br \/>\nSchedule of Cost of Goods Manufactured<br \/>\nMonth Ended July 31, 2021<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning Work-in-Process Inventory<\/td>\n<td><\/td>\n<td class=\"r\">$ 66,000<\/td>\n<\/tr>\n<tr>\n<td>Direct Materials Used:<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning Direct Materials<\/td>\n<td class=\"r\">$ 12,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Purchases of Direct Materials (including Freight In)<\/td>\n<td class=\"r\">160,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Materials Available for Use<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>172,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending Direct Materials<\/td>\n<td class=\"r\">(5,000)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Direct Materials Used<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>167,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Direct Labor<\/td>\n<td class=\"r\">88,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Manufacturing Overhead<\/td>\n<td class=\"r\">90,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total Manufacturing Costs Incurred during the Year<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">345,000<\/td>\n<\/tr>\n<tr>\n<td>Total Manufacturing Costs to Account For<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>411,000<\/td>\n<\/tr>\n<tr>\n<td>Ending Work-in-Process Inventory<\/td>\n<td><\/td>\n<td class=\"r\">(16,000)<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Manufactured<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$395,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Our beginning dollar amount for finished goods inventory is based on last month\u2019s ending inventory. Let\u2019s say that last month, our unit cost was $400 and we had 60 units on hand. The total cost of inventory on June 30 at midnight was $24,000 (400 * 60).<\/p>\n<p>Therefore, the total cost of finished goods inventory at the start of business on July 1 was $24,000.<\/p>\n<p>If our unit cost was $395 for the month of July, and at the close of business on July 31 we count 90 units on hand, then our July 31 ending inventory at cost is $35,550 (395 * 90).<\/p>\n<p>Using this formula\u2014<\/p>\n<p style=\"text-align: center;\">Costs of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured \u2013 Ending Finished Goods Inventory<\/p>\n<p>We calculate cost of goods sold as follows:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>ABC Manufacturing Company<br \/>\nSchedule of Cost of Goods Sold<br \/>\nMonth Ended July 31, 2021<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Blank Column<\/th>\n<th scope=\"col\">Blank Column<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning Finished Goods Inventory<\/td>\n<td><\/td>\n<td><\/td>\n<td>$ 24,000<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Manufactured<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">395,000<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Available for Sale<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>419,000<\/td>\n<\/tr>\n<tr>\n<td>Ending Finished Goods Inventory<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">(35,550)<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Sold<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 383,450<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>To make the manufacturer\u2019s income statement more understandable to readers of the financial statements, financial accountants do not show all of the details that appear in the Cost of Goods Manufactured statement.<\/p>\n<p>We are assuming in this case that we sold all 60 of the units we had on hand at the beginning of the month (called the FIFO assumption &#8212; First-in, First-out).<\/p>\n<p>Let\u2019s reconcile our calculation just to make sure we got it right.<\/p>\n<p>If we started with 60 units, completed 1,000, and then had 90 left, we must have sold 970.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Blank Column<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning Finished Goods Inventory<\/td>\n<td><\/td>\n<td class=\"r\">60<\/td>\n<\/tr>\n<tr>\n<td>Goods Manufactured<\/td>\n<td><\/td>\n<td class=\"r\">1,000<\/td>\n<\/tr>\n<tr>\n<td>Goods Available for Sale<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>1,060<\/td>\n<\/tr>\n<tr>\n<td>Ending Finished Goods Inventory<\/td>\n<td><\/td>\n<td class=\"r\">(90)<\/td>\n<\/tr>\n<tr>\n<td>Goods Sold<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>970<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Of those 970 units we sold, 60 were on hand at the beginning of the month at a cost of $400 each, and the other 910 were from July production at $395 per unit.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Blank Column<\/th>\n<th scope=\"col\">Units of Inventory<\/th>\n<th scope=\"col\">Price Per Unit<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning inventory sold<\/td>\n<td><\/td>\n<td class=\"r\">60<\/td>\n<td class=\"r\">$ 400<\/td>\n<td class=\"r\">$ 24,000<\/td>\n<\/tr>\n<tr>\n<td>July inventory sold<\/td>\n<td><\/td>\n<td class=\"r\">910<\/td>\n<td class=\"r\">$ 395<\/td>\n<td class=\"r\">359,450<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>970<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 383,450<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s take a look at how this might look on the financial statements for our company.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>ABC Manufacturing Company<br \/>\nIncome Statement<br \/>\nMonth Ended July 31, 2021<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales<\/td>\n<td class=\"r\">$ 538,350<\/td>\n<\/tr>\n<tr>\n<td>Cost of goods sold<\/td>\n<td class=\"r\">383,450<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>154,900<\/td>\n<\/tr>\n<tr>\n<td>Selling, general, and administrative expenses<\/td>\n<td class=\"r\">95,000<\/td>\n<\/tr>\n<tr>\n<td>Net income before taxes<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>59,900<\/td>\n<\/tr>\n<tr>\n<td>Income tax expense<\/td>\n<td class=\"r\">20,366<\/td>\n<\/tr>\n<tr>\n<td>Net income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 39,534<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>For now, it\u2019s enough to understand that managerial accountants track production costs and transfer those costs from account to account based on each stage of completion. This information is critical to managers in manufacturing companies who make purchasing decisions, determine selling prices, prepare sales budgets, and schedule production. We\u2019ll address the question of exactly HOW costs are assigned to each product during the manufacturing process in later modules on process and job costing, but first, check your understanding of the flow of costs.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm217914\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=217914&theme=oea&iframe_resize_id=ohm217914\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-64\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Cost of Goods Sold. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Principles of Managerial Accounting. <strong>Authored by<\/strong>: Christine Jonick. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/ung.edu\/university-press\/books\/managerial-accounting.php\">https:\/\/ung.edu\/university-press\/books\/managerial-accounting.php<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">Lumen Learning authored content<\/div><ul class=\"citation-list\"><li>Balance Sheet \/ Income Statement. <strong>Authored by<\/strong>: Lumen Learning. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Cost of Goods Sold\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Principles of Managerial Accounting\",\"author\":\"Christine Jonick\",\"organization\":\"\",\"url\":\"https:\/\/ung.edu\/university-press\/books\/managerial-accounting.php\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"lumen\",\"description\":\"Balance Sheet \/ Income Statement\",\"author\":\"Lumen Learning\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-64","chapter","type-chapter","status-publish","hentry"],"part":21,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":20,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64\/revisions"}],"predecessor-version":[{"id":2319,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64\/revisions\/2319"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/21"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=64"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=64"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=64"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=64"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}