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How do manufacturing costs flow through direct materials, direct labour and overhead to a cost of goods manufactured and then cost of sales?

Trace manufacturing costs through prime cost and conversion cost, calculate the cost of goods manufactured using work in process, and link it to cost of sales for a manufacturer

WACE Year 12 Accounting and Finance Unit 4 on manufacturing cost flows: direct materials, direct labour and overhead, prime cost and conversion cost, the cost of goods manufactured schedule with work in process, and the link to cost of sales.

Generated by Claude Opus 4.76 min answer

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  1. What this dot point is asking
  2. The three manufacturing costs
  3. Prime cost and conversion cost
  4. Cost of goods manufactured

What this dot point is asking

SCSA wants you to classify manufacturing costs, calculate prime and conversion cost, and build the cost of goods manufactured and cost of sales figures using inventory movements.

The three manufacturing costs

Prime cost and conversion cost

Cost of goods manufactured

Production is rarely finished exactly at year end, so partly complete units sit in work in process. Cost of goods manufactured adjusts total manufacturing cost for the change in work in process:

COGM=Total manufacturing cost+Opening WIP−Closing WIP\text{COGM} = \text{Total manufacturing cost} + \text{Opening WIP} - \text{Closing WIP}

Then cost of sales adjusts cost of goods manufactured for the change in finished goods:

Cost of sales=COGM+Opening finished goods−Closing finished goods\text{Cost of sales} = \text{COGM} + \text{Opening finished goods} - \text{Closing finished goods}