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COM

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PRODUCT COSTS
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AND
MANUFACTURING
COSTS
JAIME FLOW
JR, B. CORTIDOR
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SLIDESMANIA.COM

TOPIC OUTLINE

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PRODUCT COSTS FLOW
1 – Definition

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2 – Process
3 – Costs flow methods
MANUFACTURING COSTS FLOW
1 – Definition

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2 – costs flow process
3– points to consider in inventory
4 – different types of inventory
BRAIN TEST

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PRODUCT COSTS
FLOW
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PRODUCT COSTS
FLOW

DEFINITION
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• Refers to the manner or path in which
Product costs move through a firm.
Typically, the flow of costs is relevant with

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manufacturing companies to monitor how
material up to the products works
throughout its process. (INVESTOPEDIA)

• An assumption that determines the order in

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which costs should flow out of a balance
sheet account (e.g. Inventory, Investments,
Treasury Stock) when the item is sold.
• (ACCOUNTING COACH )

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 PRODUCT COSTS FLOW
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PROCESS

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The process of the flow of costs begins with

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valuing the raw materials used in manufacturing.
The flow of costs then moves to the work-in-
process inventory. The cost of the machinery and
labor involved in production are added as well as

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any overhead costs. The flow of costs next moves
to the inventory stage where the finished goods are
stored until they're sold. Following the sale of the
goods, the flow of costs finally moves to cost of

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goods sold.
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 PRODUCT COSTS FLOW
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STAGE PROCESS

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RAW MATERIALS
● Raw materials are the input goods or
inventory that a company needs to

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manufacture its products.
WORK IN PROCESS INVENTORY
● Work-in-process inventory is materials that
have been partially completed through the

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production process. These items are typically
located in the production area,
FINISHED GOODS INVENTORY
● Finished goods are goods that have been

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completed by the manufacturing process, or
purchased in a completed form, but which
have not yet been sold to customers.
COSTS OF GOOD SOLD

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● Refers to the direct costs of producing the
goods sold by a company. This amount
includes the cost of the materials and labor
directly used to create the good.
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COSTS FLOW METHODS

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Definition: This are the procedures followed for
the ascertainment and presentation of costs.

METHODS
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Specific Identification Inventory Valuation

● SIIV method is a system for tracking every single

item in an inventory individually from the time it
enters the inventory until the time it leaves it.

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Weighted average cost method.

● It divides the cost of goods available for sale by

the number of units available for sale.

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Last In, First Out (LIFO)

●  Method used to account for inventory that

records the most recently produced items as sold

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first. 

First In, First Out (FIFO)

● It is an asset-management and valuation method

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in which assets produced or acquired first are

sold, used, or disposed of first.
 IMPORTANCE OF COSTS
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FLOW METHODS

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1. Help to understand the value of inputs and outputs
in production process.

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2. Helps the management to find the actual cost per
unit of each product.

3. It helps to find out cost at various stages of its

production.

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4. It reveals the profit and loss of each activity

5. Helps the management to take decisions

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6. Comparison of performance is possible.

7. It contributes to the building up of good

organizational structure

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8. Efficient communication system.

9. Avoidance of wastage

10.Data are useful to the government.

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FIFO EXAMPLE

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Masks and More, Inc. sells custom-designed facial
coverings. They bought:
MONTH # OF UNITS PRICE

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APRIL 200 $2
MAY 200 $3
JUNE 100 $4

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That’s a total of 500 masks they bought, and 300 masks sold during

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the year. If you were developing the company’s balance sheet at the
end of the year, what value would you enter for inventory if you

C
use FIFO?

Value of Inventory Under FIFO = (Units of Newest Inventory x

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Value) + (Units of any other Newer and Remaining Inventory x Value)
• Value of Inventory Under FIFO = (100 X $4) + (100 X
$3) = $700

COGS = (Number of Items Sold First x Value) + (Number of Items

Sold Next x Value)...until you factor all items sold

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• COGS = (200 X $2) + (100 X $3) = $700
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LIFO EXAMPLE

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Masks and More, Inc. sells custom-designed facial
coverings. They bought:
MONTH # OF UNITS PRICE

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APRIL 200 $2
MAY 200 $3
JUNE 100 $4

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That’s a total of 500 masks they bought, and 300 masks sold during

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the year. If you were developing the company’s balance sheet at the
end of the year, what value would you enter for inventory if you

C
use LIFO?

Value of Inventory Under LIFO = Oldest and Remaining

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Units of Inventory x Value

• Value of Inventory Under LIFO = (200 X $2) = $400

COGS = (Number of Items Sold First x Value) + (Number of

Items Sold Next x Value)...until you factor all items sold

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‍
• COGS = (200 X $3) + (100 X $4) = $1000 TITLE F
 WEIGHTED AVERAGE COST
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EXAMPLE

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Masks and More, Inc. sells custom-designed facial
coverings. They bought:
MONTH # OF UNITS PRICE

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APRIL 200 $2
MAY 200 $3
JUNE 100 $4

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Weighted Average Cost = COGS/Total Number of Units
Available Over a Period of Time

C
‍
Let’s assume we’ve still sold 300 of our 500 masks, and we’re
using our last example (where we used the LIFO method). That

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put our COGS at $1000. Now we just divide that by our total
units (500).
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Weighted Average Cost = $1000/500 units = $2
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So, our weighted average cost per unit is $2.

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Examples of Specific Identification Inventory

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Valuation Method

1. Suppose a car dealership has 50 cars on the lot. Each

car has a different dealer cost and a different sales price

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based on the model and its features. Each of the cars is
tracked individually from the time they enter the lot
until they are sold.

2. Say an investor owns 1,000 shares of ABC company, a

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volatile small-cap manufacturer. It includes 400 shares
purchased for $40 per share, 300 shares at $60 per

C
share, and the remaining 300 shares at $20 per share.
The investor then sells 300 shares at $70 per share.

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.

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MANUFACTURING
COSTS FLOW
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 MANUFACTURING COSTS
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FLOW

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Definition:
• The manufacturing cost flow begins when costs

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are incurred for direct materials, direct labor, and
overhead.
• The flow of manufacturing costs is a cumulative
sum, including the direct and overhead costs
incurred in the different stages of the

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manufacturing processes, in the life-cycle of a
product, up until it has reached its point of sale.

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 MANUFACTURING COSTS
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FLOW

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RAW MATERIALS

● Materials waiting to be processed

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WORK IN PROGRESS(WIP)

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● Partially complete products -material to which some labour

D
and/ or overhead has been added.

FINISHED GOODS

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● Completed products awaiting sale TITLE F
 POINTS TO CONSIDER IN
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MAKING INVENTORY

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Materials Cost
Materials cost is the cost of materials used in manufacturing

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a product. It can be classified into two types:

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 POINTS TO CONSIDER IN
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MAKING INVENTORY

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Labor Cost
Labor cost contributes a significant part in the total
production cost. So, the labor cost is the second important

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element of manufacturing cost, it is the cost spent on the
workers who are directly or indirectly involved in the
manufacturing operations.

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 POINTS TO CONSIDER IN
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MAKING INVENTORY

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Direct and Indirect Expenses
All the expenditure other than the direct material cost and
direct labor cost are referred to as expenses. The cost of

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indirect material and indirect labor is included in the
expenses, which are further classified as, direct or indirect
expenses.

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RAW MATERIALS INVENTORY

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● Raw materials inventory is the total cost of a
manufacturer’s components, subassemblies, and
supplies currently in stock that hasn’t been used for

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manufacturing.

EXAMPLE

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 WORK IN PROCESS
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INVENTORY

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● Work in process (WIP) inventory is a term used to
refer to partly finished materials within any
production round. Work in process in production

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and supply chain management refers to the total
cost of unfinished goods currently in production. 

EXAMPLE

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FINISHED GOODS INVENTORY

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● Finished goods inventory is the total stock available
for customers to purchase that can be fulfilled.
Using the finished goods inventory formula, sellers

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can calculate the value of their goods for sale.

CALCULATING FINISHED GOODS INVENTORY

● COGM is calculated as: (Beginning WIP

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Inventory + Total Manufacturing Cost) – Ending
WIP Inventory
● COGS is calculated as: (Beginning Inventory +
Purchases During the Period) − Ending Inventory

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● FG is calculated as: (COGM – COGS) + Value of
Previous Year’s Finished Goods

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FINISHED GOODS INVENTORY

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1. Let’s say BlueCart Coffee Co. ended last period
with $50,000 in finished goods inventory. That
means this period their beginning finished goods

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inventory is $50,000. Now let’s say their COGM
for the period is $80,000 and their COGS is
$60,000.

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ANSWER :
Finished Goods Inventory = ($80,000 - $60,000)+
$50,000
$70,000

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BRAIN TEST

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At the end of last year, Jen’s Candles had 800 finished
candles in stock.Candles cost $2 each to produce.

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During the year, Jen’s Candles manufactured 1000
candles and sold 600 candles. Calculate the Previous
finished goods inventory, the cost of goods
manufactured, the cost of good sold and the finished

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goods value

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BRAIN TEST

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At the end of last year, Jen’s Candles had 800 finished
candles in stock.Candles cost $2 each to produce.

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During the year, Jen’s Candles manufactured 1000
candles and sold 600 candles. Calculate the Previous
finished goods inventory, the cost of goods
manufactured, the cost of good sold and the finished

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goods value

ANSWER:
Previous finished goods inventory value = 800 x $2

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= $1600
Cost of goods manufactured = 1000 x $2 = $2000
Cost of goods sold = 600 x $2 = $1200
Finished goods= $2400.

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THE END, THANK

JAIME JR, B. CORTIDOR

YOU
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