Inventory and Cost of Goods Manufactured A What are the thre

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

Solution

The inventory is very important for all of the business. But for manufacturing business the importance of inventory is very much. There are 3 stages of the manufacturing product and on the basis of the same the three major inventories of manufacturing firms are:

The total cost of goods manufactured is computed after considering all the relevant cost of the production. For the same the opening stock of inventory of Raw material, WIP and FG considered. Also the closing inventory and purchased of the inventory is also considered for this purpose. First it need to calculate the number of units manufactured. Then considered how much raw material is required for production of 1 unit of finished and on the basis of Raw material purchased. Also the WIP is considered. The opening WIP is converted into finished goods and the same is considered to compute the total cost of goods manufactured. In brief the formula to compute the total cost of manufacture is:

Cost of Manufacture = Direct Material Used + Direct Labor used + Direct Manufacturing Overhead

Cost of Manufacture = The manufacturing costs incurred in the current accounting period + beginning work in process inventory – ending work in process inventory

Reference:

Stevenson, W. J., & Hojati, M. (2002). Operations management (Vol. 8). New York, NY: McGraw-Hill/Irwin.

Ulrich, K. (1995). The role of product architecture in the manufacturing firm. Research policy, 24(3), 419-440.