Randy,
COGS is basically purchases + direct labor + overhead. In Vantage, the
software accumulates these costs to WIP inventory and when sold that
inventory is reduced by the COGS amount and the COGS amount is charged to
expense.
All the labor and overhead is also charged directly to various expense
accounts as they are incurred. Those expenses are allocated to WIP
inventory via a credit to Labor Applied and Overhead Applied. In a perfect
world, the net manufacturing expenses should be zero meaning 100% of direct
labor and overhead have been applied to WIP (production).
When creating the traditional schedule of cost of goods sold the format
looks like this:
+Beginning Inventory
+Purchases
+Manufacturing expenses (labor and overhead)
-Ending inventory
= Cost of goods sold
Notice that I never mentioned the purchases account above. One does not
exist. To arrive at the purchases amount you need to back into as follows:
+COGS accounts
- Beginning Inventory
+Ending inventory
-labor and overhead applied
=Purchases
I hope this brief explanation is helpful.
Edward F. Fox, Jr., CPA
Controller
Maxson Automatic Machinery Company
Phone 401-596-0162 . Fax 401-596-1050
<http://www.maxsonautomatic.com> www.maxsonautomatic.com
_____
From: vantage@yahoogroups.com [mailto:vantage@yahoogroups.com] On Behalf Of
randyweb
Sent: Tuesday, February 22, 2011 1:14 PM
To: vantage@yahoogroups.com
Subject: [Vantage] Bean counter help please
Hello,
I know enough about accounting to be dangerous, but I have to try to explain
to my boss, the CFO, the difference between COGS and Manufacturing Expense.
Epicor shows Mfg Expense after COGS and it contains freight out, vacation
and holiday, sick pay, etc.
I understand there is a difference between direct mfg costs such as
material, lanbor, and overhead asociated with manufacturing.
Can someone explain on a philosophical level (or layman's terms) how you
decide that say shop supplies are in Mfg-Exp versus COGS. Another item in
Epicor's sample was perishable tooling.
It is clear to me what definitely belongs in COGS, but not clear those items
which are associated with manufacturing, but for some reason end up in Mfg
Expense.
Thanks in advance.
Randy Weber
Operations Manager
Rayotek Scientific
San Diego, CA
__________ Information from ESET NOD32 Antivirus, version of virus signature
database 5896 (20110222) __________
The message was checked by ESET NOD32 Antivirus.
http://www.eset.com
[Non-text portions of this message have been removed]
COGS is basically purchases + direct labor + overhead. In Vantage, the
software accumulates these costs to WIP inventory and when sold that
inventory is reduced by the COGS amount and the COGS amount is charged to
expense.
All the labor and overhead is also charged directly to various expense
accounts as they are incurred. Those expenses are allocated to WIP
inventory via a credit to Labor Applied and Overhead Applied. In a perfect
world, the net manufacturing expenses should be zero meaning 100% of direct
labor and overhead have been applied to WIP (production).
When creating the traditional schedule of cost of goods sold the format
looks like this:
+Beginning Inventory
+Purchases
+Manufacturing expenses (labor and overhead)
-Ending inventory
= Cost of goods sold
Notice that I never mentioned the purchases account above. One does not
exist. To arrive at the purchases amount you need to back into as follows:
+COGS accounts
- Beginning Inventory
+Ending inventory
-labor and overhead applied
=Purchases
I hope this brief explanation is helpful.
Edward F. Fox, Jr., CPA
Controller
Maxson Automatic Machinery Company
Phone 401-596-0162 . Fax 401-596-1050
<http://www.maxsonautomatic.com> www.maxsonautomatic.com
_____
From: vantage@yahoogroups.com [mailto:vantage@yahoogroups.com] On Behalf Of
randyweb
Sent: Tuesday, February 22, 2011 1:14 PM
To: vantage@yahoogroups.com
Subject: [Vantage] Bean counter help please
Hello,
I know enough about accounting to be dangerous, but I have to try to explain
to my boss, the CFO, the difference between COGS and Manufacturing Expense.
Epicor shows Mfg Expense after COGS and it contains freight out, vacation
and holiday, sick pay, etc.
I understand there is a difference between direct mfg costs such as
material, lanbor, and overhead asociated with manufacturing.
Can someone explain on a philosophical level (or layman's terms) how you
decide that say shop supplies are in Mfg-Exp versus COGS. Another item in
Epicor's sample was perishable tooling.
It is clear to me what definitely belongs in COGS, but not clear those items
which are associated with manufacturing, but for some reason end up in Mfg
Expense.
Thanks in advance.
Randy Weber
Operations Manager
Rayotek Scientific
San Diego, CA
__________ Information from ESET NOD32 Antivirus, version of virus signature
database 5896 (20110222) __________
The message was checked by ESET NOD32 Antivirus.
http://www.eset.com
[Non-text portions of this message have been removed]