Final answer:
The Cost of Goods Manufactured (COGM) is a key figure on the Leone Company's income statement, reflecting the total production costs for completed goods during an accounting period. It is calculated by adjusting total manufacturing costs with the beginning and ending work-in-process inventories. An example calculation shows how the COGM would be used to determine the cost of goods sold on the income statement.
Step-by-step explanation:
The cost of goods manufactured (COGM) is a crucial figure in the preparation of a company's income statement, particularly for a manufacturing entity like the Leone Company. It represents the total production costs of goods that were completed during a specific accounting period. COGM is calculated by adding the beginning work-in-process inventory to the total manufacturing costs for the period and then subtracting the ending work-in-process inventory.
The formula for calculating the cost of goods manufactured is as follows:
- Total Manufacturing Costs (Direct Materials + Direct Labor + Manufacturing Overhead)
- Plus Beginning Work-in-Process Inventory
- Less Ending Work-in-Process Inventory
- Equals Cost of Goods Manufactured
To elucidate, if the Leone Company began with a work-in-process inventory of $20,000 and incurred $100,000 in total manufacturing costs during the period while ending the period with a work-in-process inventory of $10,000, the cost of goods manufactured would be:
($20,000 + $100,000) - $10,000 = $110,000
This amount is then used to calculate the cost of goods sold (COGS), which is featured on the income statement and is vital for determining the company's gross profit.