Inventory and Cost of Goods Manufactured A What are the thre

Inventory and Cost of Goods Manufactured (A) What are the three major inventories of a manufacturing firm? (B) Explain hov to calculate the total cost of goods manufactured. Include at least one internet reference to support your response.

Solution

(A). The three major inventories of a manufaturing firm are -

1. Raw material:- which are purchased from market to make finished goods. For example, cloth in case of garment industry.

2. Work in progress:- which are partily produced. For example, in case of garment industry, the cloth which has been cut into pieces but is not yet stitched is work in progress.

3. Finished goods:- which are ready to be sold in market. Stiched garments are finished goods in our example.

(B). The total cost of goods manufactured can be calculated as:

Total cost of goods manufactured = Material cost + Labour cost + manufacturing overheads

Taking the same example, material cost would be amount spent on buying cloth, thread etc. ; labour cost would be amount paid to trailors, other workers etc. and manufacturing overheads would be electricity, depreciation on machines etc.

You can find the reference on internet here: http://smallbusiness.chron.com/calculate-total-manufacturing-cost-accounting-39694.html