how a cost of gooods manufactured determined from variuos cost including fixed variable firect

indirect
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The Cost of Goods Manufactured (COGM) represents the total cost incurred to produce goods that
are ready for sale during a specific accounting period. To determine COGM, various costs, including
fixed, variable, direct, and indirect costs, are considered:

1. Direct Materials Cost:

 These are the costs of materials that directly go into the production of goods. They
include raw materials used in manufacturing the product.
2. Direct Labor Cost:
 These are the wages and benefits paid to workers directly involved in the production
process. It includes the labor costs directly attributable to manufacturing.
3. Manufacturing Overhead:
 These are indirect costs incurred during the production process that are not directly
attributable to specific units of production. It includes various costs like rent, utilities,
depreciation on equipment, indirect labor, etc.
4. Variable and Fixed Costs:
 Variable Costs: These costs change in direct proportion to changes in production
levels. For example, the cost of raw materials.
 Fixed Costs: These costs remain constant regardless of the production level, such as
rent for the manufacturing facility or depreciation on machinery.

Formula for Calculating COGM:

COGM = Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead

Calculation:

1. Direct Materials: Cost of materials used in production.

2. Direct Labor: Cost of labor directly involved in manufacturing.
3. Manufacturing Overhead: Calculated by adding all indirect manufacturing costs.

Once these costs are summed up, the result represents the total cost incurred to produce goods
during the accounting period. This figure, the COGM, reflects the expenses specifically tied to the
production process and forms a part of the overall cost structure of the produced goods.

You
example and meaning and all types of fixed direct indirect variable cost
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Sure, let's break down the various types of costs commonly encountered in business:
Fixed Costs:

 Meaning: Fixed costs are expenses that remain constant regardless of production levels or
sales volume within a certain range.
 Examples: Rent for a manufacturing facility, salaries of permanent employees, insurance
premiums, property taxes, etc.

Variable Costs:

 Meaning: Variable costs fluctuate in direct proportion to changes in production levels or

sales volume.
 Examples: Raw materials used in production, direct labor costs (hourly workers paid based
on hours worked), electricity usage for production machinery (higher usage with increased
production), etc.

Direct Costs:

 Meaning: Direct costs are expenses directly tied to the production of goods or services. They
are easily traceable to a specific product or service.
 Examples: Raw materials used to manufacture a product, wages paid to workers directly
involved in manufacturing, packaging materials for a specific product, etc.

Indirect Costs:

 Meaning: Indirect costs are expenses that are not directly attributable to a specific product,
project, or department. They support the overall business operations.
 Examples: Overhead costs like rent, utilities, salaries of support staff (administrative
personnel), depreciation on machinery used for various products, etc.

Example: Consider a manufacturing company producing furniture:

 Fixed Costs: Rent for the manufacturing facility, salaries of permanent staff, insurance
premiums for the facility.
 Variable Costs: Wood and other raw materials used for furniture production, hourly wages
for assembly line workers based on production levels.
 Direct Costs: Wood used in a specific furniture item, wages of workers directly involved in
crafting a particular piece of furniture.
 Indirect Costs: Rent for the office space used by administrative staff, utilities for the entire
facility, depreciation on machinery used for various furniture items.

Understanding these cost categories helps businesses in budgeting, pricing decisions, and evaluating
the overall cost structure related to production and operations.
inventory includes indirect cost as permanent emplyees wage and on the hand under expenses on a
balnce sheet there is salary expense, so how can one distinguish these so it does not repeat
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That's a perceptive observation. In accounting, expenses and inventory costs are indeed handled
differently, even though both might involve employee wages.

Here's how you can distinguish between the two:

1. Inventory Costs:
 Direct Labor for Production: Wages directly associated with the manufacturing or
production process are included in inventory costs. These are considered part of the
cost of producing goods and are included in the valuation of inventory.
 Example: If employees are directly involved in assembling products or handling
materials for inventory, their wages during this process are included in the inventory
cost.
2. Expense:
 Indirect Labor and Administrative Wages: Wages for administrative staff or
employees not directly involved in production are typically categorized as expenses.
These wages are part of the operating expenses of the business.
 Example: Salaries for administrative staff, HR personnel, accounting department, etc.,
are considered operating expenses and are included in the income statement under
salary expenses.

Distinction:

 Allocation Basis: The distinction often lies in how these wages are allocated. Wages directly
tied to producing goods are part of inventory, while wages related to administrative or non-
production activities are categorized as expenses.
 Reporting: Proper bookkeeping and accounting practices ensure the correct allocation of
these costs, avoiding duplication. Using different general ledger accounts for inventory costs
and expense costs helps maintain this separation and prevents double-counting.