### McDermott Manufacturing

```An Introduction to Management
Accounting
Emphasizing the flow of costs
through factory.
Richard E. McDermott
Understanding the Factory
Manufacturing costs
Total manufacturing costs
Cost of goods manufactured
McDermott Manufacturing
Marketing
Factory
Supervisor
Raw Material Storeroom
Finished Goods
Storeroom
Factory
Some Basic Formulas
Beginning inventory + transferred in - ending inventory = transferred out
BI + TI – EI = TO
Generic Terms
Raw Materials
Storeroom Terms
Factory Terms
Finished Goods
Storeroom Terms
Beginning inventory
Beginning inventory
raw materials
Beginning inventory
work-in-process
Beginning inventory
finished goods
Transferred in
Purchases
Manufacturing costs
Cost of goods
manufactured
Ending inventory
Ending inventory raw
materials
Ending inventory workin-process
Ending inventory
finished goods
Transferred out
Direct materials or
indirect materials
transferred to the
Cost of goods
manufactured
Cost of goods sold
Direct Costs
Indirect Costs
Other Terms
Total manufacturing costs
Cost of goods manufactured
McDermott Manufacturing
Direct Costs
Indirect Costs
\$13,500
Key
BI = Beginning inventory
TI = Transferred in
EI = Ending inventory
TO = Transferred out
Marketing
\$6,000
Factory
Supervisor
\$9,500
Raw Material Storeroom
BI = \$12,000
TI = \$30,000
EI = \$27,000
Factory
BI = \$50,000
TI = overhead applied of \$9,000, direct labor of
\$18,000, and direct materials of \$15,000
EI = \$32,000
Finished Goods
Storeroom
BI = \$17,000
TI = \$60,000
ED = \$12,000
Calculating the Cost of Raw Materials
Transferred Out Of the Raw Material
Storeroom
Beginning inventory raw
materials
\$12,000
Raw materials purchased
\$30,000
Ending inventory raw
materials
\$27,000
BI + TI – EI = TO
\$12,000 + \$30,000 - \$27,000 = \$15,000
Calculating the Cost of Goods
Manufactured
Beginning inventory work in
process
Direct labor
Direct materials
Ending inventory work in
process
\$50,000
\$18,000
\$15,000
\$9000
\$32,000
\$50,000 beginning inventory work in process + a total of
\$42,000 of manufacturing costs added \$-32,000 and ending
inventory = \$60,000 cost of goods manufactured.
Calculating the Cost of Goods Sold
Beginning inventory finished
goods
\$17,000
Cost of goods manufactured-(Transferred in)
\$60,000
Ending inventory finished
goods
\$12,000
Beginning inventory of finished goods equaling \$17,000 +
cost of goods manufactured of \$60,000 - ending inventory
finished goods of \$12,000 = \$65,000 cost of goods sold