5 THE SCHEDULE OF COST OF GOODS MANUFAC-TURED LISTS THE MANUFACTURIN...

2-5 The schedule of cost of goods manufac-

tured lists the manufacturing costs that have

great cost or inconvenience. Indirect materials

been incurred during the period. These costs are

are ordinarily classified as manufacturing over-

head.

organized under the three major categories of

direct materials, direct labor, and manufacturing

c. Direct labor includes those labor costs

overhead. The total costs incurred are adjusted

that can be easily traced to particular products.

for any change in the Work in Process inventory

Direct labor is also called “touch labor.”

to determine the cost of goods manufactured

d. Indirect labor includes the labor costs of

(i.e. finished) during the period.

janitors, supervisors, materials handlers, and

The schedule of cost of goods manufac-

other factory workers that cannot be conven-

tured ties into the income statement through

iently traced to particular products. These labor

the Cost of Goods Sold section. The cost of

costs are incurred to support production, but the

workers involved do not directly work on the

goods manufactured is added to the beginning

Finished Goods inventory to determine the

product.

e. Manufacturing overhead includes all

goods available for sale. In effect, the cost of

goods manufactured takes the place of the

manufacturing costs except direct materials and

“Purchases” account in a merchandising firm.

direct labor.