ACCT 2102 1st Edition Lecture 5 Outline of Last Lecture: I. Cost II. Financial StatementsOutline of Current Lecture: III. Review IV. Income Statements V. Calculating COGS for a MerchandiserCurrent Lecture: Building Blocks of Managerial Accounting (Chapter 2, Part 3)*Attendance TakenIII. ReviewThe 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 StatementsProduct 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.• 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 yV. Calculating COGS for with a formula for a Merchandiser1. 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 movedto Finished Goods Inventory during the period (WIP Inv.)• Beg WIP Inv. + (DM + DL + MOH)* – COGM = End WIP Inv.• (DM + DL + MOH) + BWIP – EWIP = COGM3. 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 period2. 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. UPSdelivered 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 sold5 + 10 – 3 = 12• What is the ending inventory cost on the balance sheet? Ending inventory x product cost = ending inventory cost3 x $0.25 = $0.75 • Calculate Helga’s Gross Profit and Operating Income for the day. SR – COGS = GP GP – Op Exp = Op ySR= units sold x sales price Op Exp = $2 + $1 = $3$12 = 12 x $1COGS= unit product cost x units sold$3 = $0.25 x 12SR – COGS = GP GP – Op Exp = Op y$12 – $3 = $9 $9 – $3 =
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