Manufacturing Costs

On this occasion, we will discuss the flow of costs in manufacturing companies from operating reports to flow reports, happy reading …

Table of contents :

  • Manufacturing Cost Flow
  • Operations reporting
  • Income statement
    • Single Step
    • Multiple Step
  • Example of a flow report
    • Cash from Operational Activities
    • Cash From Investing Activities
    • Cash From Financing Activities
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Manufacturing Cost Flow

The manufacturing industry carries out a production process that will carry out the conversion from raw materials to materials that are ready for use by consumers and other industries.

In this conversion process, of course, will use factory machines and also the employees who will manage them. In addition, this production process also really requires electricity, water or other resources.

The flow of costs in manufacturing is:

  • Raw material
  • Direct labor
  • Overhead

Semi-finished goods
(WIP)

Finished Goods
(FG)

COGS
(COGS)

First of all, we will calculate the raw materials, direct labor and overhead that will be used in an accounting period. The sum of these results will produce the Total Manufacturing Cost, which in the result will be transferred to semi-finished goods or WIP.

Total Manufacturing Costs are Raw Materials + Direct Labor + Overhead.

In WIP there is an opening balance as well as an ending balance. The total value of this WIP that will be available at the beginning of the period is the Beginning Balance + Total Manufacturing Costs.

Then then the WIP that has been used or the WIP that has been turned into finished goods or also FG (Finished Good) is the difference between WIP Available at the beginning of the period and the WIP ending balance, this is often known as Cost of Goods Manufactured.

Cost of Goods Manufactured is initial WIP + Total Manufacturing Costs – End period WIP.

In finished goods or also FG (Finished Goods) there is a period beginning balance and an end period balance. Finished goods that are already available or FG Available in the accounting period is where the calculation of the initial FG of the period + Cost of Goods Manufactured.

 

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The difference between FG Available and FG at the end of this period is the cost of the goods to be sold or called the Cost of Goods Solds or COGS.

COGS = FG at the beginning of the period + Costs of Goods Manufactured – FG at the end of the period.

If it is continued with sales, the difference between Sales Revenue and Cost of Goods Sold is the Gross Margin.

Gross Margin is Sales Revenue – Cost of Goods Sold.

Operations reporting

Operational Report, this will reflect past events as well as current status. Information contained in the report

such will be obtained from the day-to-day operations that the company has carried out. The main objective of the Operational Report is to be able to support operations.

Income statement

There are 2 forms of income statement that will generally be used in the company’s financial reporting activities, namely single step or multiple step.

a. Single Step

In a single step form, all income and profits including operating elements will be placed at the beginning of the income statement.

This is followed by all expenses and losses which are also included in the operating category. The difference between total income or profit and total expenses and losses that will result in operating profit.

b. Multiple Step

This report will separate operating transactions from non-operating transactions, and will also compare costs and expenses with related revenues.

Disclosure of operating profit will show where the difference is between ordinary activities and activities that are unusual or incidental

Example of a flow report

example of a cash flow statement. Cash flow is one part of financial statements. This cash flow will illustrate where the use of cash is in the three parts of a company’s activities that are closely related to cash problems.

 

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The cash flow statement is a financial report that comes from the use of cash. in the form of this report consists of three namely:

  • Cash from operating activities
  • Cash from investing activities
  • Cash from Financing activities

1. Cash from Operational Activities

In this section, it usually consists of the main activities of the company that will directly affect cash, such as receiving receivables, paying debts, paying employee salaries and so on.

2. Cash From Investing Activities

Cashd problems from investing activities are matters that will relate to the acquisition of the sale of fixed assets and also the purchase of assets.

3. Cash From Financing Activities

And for cash problems from financing activities, it is usually related to the addition or reduction of capital.

 

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