ACCT 2102 1st Edition Lecture 5 Outline of Last Lecture I Cost II Financial Statements Outline of Current Lecture III Review IV Income Statements V Calculating COGS for a Merchandiser Current Lecture Building Blocks of Managerial Accounting Chapter 2 Part 3 Attendance Taken III Review The goods go through a set process in the factory 1 They are in raw materials inventory RM which includes materials not used waiting to be used 2 They go to work in progress inventory WIP which includes goods not finished a WIP increases when incurring all costs DM DL MOH b WIP decreases when the units are finished 3 Then they go to finished goods inventory FG which are goods that are finished but not yet sold a FG increased when goods are finished b FG decreases when finished goods are sold 4 Finally they reach the costs of goods sold COGS which is the cost of sales Each account or part of the process can have their own beginning and ending inventory accounting balance IV Income Statements Product costs will become cost of goods sold COGS when sold Period costs will become selling general and administrative expenses SG A Operating Income is the income before interest and taxes These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute V Service Company Sales revenue operating expenses operating income Shorthand SR op exp or SG A op y Merchandiser Manufacturer Sales revenue COGS gross profit Shorthand SR COGS GP Gross profit operating expense operating income GP op exp or SG A op y Calculating COGS for with a formula for a Merchandiser 1 Calculate the cost of direct materials DM used RM Inventory Beg RM Inv Purchases Used Ending RM Inv BRM P ERM Used 2 Calculate the cost of goods manufactured COGM COGM represents the cost of the those goods that were completed and moved to Finished Goods Inventory during the period WIP Inv Beg WIP Inv DM DL MOH COGM End WIP Inv DM DL MOH BWIP EWIP COGM 3 Calculate the cost of goods sold COGS finished goods FG Inv Beg FG Inv COGM COGS End FG Inv COGM BFG EFG COGS DM DL MOH Used from 1 COGM 1 Cost assigned to units completed during period 2 Decrease to WIP and increase to Finished Goods FG Example Helga s German Candy Shoppe had 5 pieces of candy at the beginning of the day UPS delivered 10 pieces of candy to her store during the day By the end of the day she only had 3 pieces left Helga buys each piece of candy direct from Germany for 0 20 each plus an additional 0 03 per piece for UPS shipping costs The government assesses a 0 02 import duty charge per piece of candy 10 of the purchase price Helga sells each piece of candy for 1 During the day Helga spent 2 printing marketing flyers and 1 phoning a potential new German supplier What is the inventoriable product cost per piece of candy Sale price shipping tax product cost 20 03 02 25 How many pieces did she sell Beginning inventory pieces delivered ending inventory pieces sold 5 10 3 12 What is the ending inventory cost on the balance sheet Ending inventory x product cost ending inventory cost 3 x 0 25 0 75 Calculate Helga s Gross Profit and Operating Income for the day SR COGS GP SR units sold x sales price 12 12 x 1 GP Op Exp Op y Op Exp 2 1 3 COGS unit product cost x units sold 3 0 25 x 12 SR COGS GP 12 3 9 GP Op Exp Op y 9 3 6
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