Cost of goods manufactured and
cost of goods sold
Lecture of Corporate Budgeting
Mgr. Tetiana Konieva, Ph.D

LOGICAL SCHEME OF BUDGETING PROCESS



TOTAL COSTS OF PRODUCTION MANUFACTURED
•Production costs refer to the costs a company incurs from manufacturing a product or providing a
service that generates revenue for the company.
•Production costs can include a variety of expenses, such as labor, raw materials, consumable
manufacturing supplies, and general overhead.
•Total product costs can be determined by adding together the total direct materials and labor
costs as well as the total manufacturing overhead costs.
•Budget of total cost of production:
Indicator
Quarters
For the year
І
ІІ
ІІІ
ІV
1. Total direct costs for materials
6503.20
6619.5
6769.5
6919.5
26811.70
2. Total direct labour costs
20788.57
21160.33
21639.84
22119.33
85708.07
3. Other direct costs:





3.1. Spoilage costs
104.05
105.91
108.31
110.71
428.99
3.2. Depreciation of equipment
819
819
819
819
3276
4. General production costs
10014.93
10194.03
10425.03
10656.03
41290.02
5. Cost of finished products (row 1+ row 2+ row 3.1+ row 3.2+ row 4)
38229.76
38898.78
39761.68
40624.58
157514.79
Cost of production per unit = total costs of production/total units produced

COST OF PRODUCTION AS PART OF THE PRICE



COST OF PRODUCTION SOLD
•https://www.investopedia.com/terms/c/cogs.asp
•Cost of goods sold is also referred to as "cost of sales.“
•Cost of goods sold (COGS) 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. It
excludes indirect expenses, such as distribution costs and sales force costs.
•Cost of goods sold (COGS) includes all of the costs and expenses directly related to the
production of goods.
•COGS excludes indirect costs such as overhead, administrative and sales and marketing.
•COGS is a part of Income statement
•COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher
COGS results in lower margins. Gross profit = net revenue – cost of goods sold
•The value of COGS will change depending on the accounting standards used in the calculation.
•COGS differs from operating expenses (OPEX) in that OPEX includes expenditures that are not
directly tied to the production of goods or services.
•

COST OF GOODS MANUFACTURED & COST OF GOODS SOLD
Cost of goods (production) manufactured per unit = 100 CZK
1 variant: Company manufactured and sold 500 units
Company manufactured 500 units, cost of goods manufactured 500 units * 100 CZK = 50000 CZK
Company sold 500 units, cost of goods sold 500 units * 100 CZK = 50000 CZK
2 variant: Company manufactured 500 units, but sold 0 units
Company manufactured 500 units, cost of goods manufactured 500 units * 100 CZK = 50000 CZK
Company sold 0 units, cost of goods sold 0 units * 100 CZK = 0 CZK
3 variant: Company manufactured 500 units, but sold 200 units
Company manufactured 500 units, cost of goods manufactured 500 units * 100 CZK = 50000 CZK
Company sold 200 units, cost of goods sold 200 units * 100 CZK = 20000 CZK
4 variant: Company manufactured 500 units, but sold 800 units (using the inventories of units, left
in warehouse from previous year)
Company manufactured 500 units, cost of goods manufactured 500 units * 100 CZK = 50000 CZK
Company sold 800 units, cost of goods sold 800 units * 100 CZK = 80000 CZK
5 variant: Company manufactured 0 units, but sold 400 units (using the inventories of units, left
in warehouse from previous year)
Company manufactured 0 units, cost of goods manufactured 0 units * 100 CZK = 0 CZK
Company sold 400 units, cost of goods sold 400 units * 100 CZK = 40000 CZK

WAYS TO CALCULATE THE COST OF GOODS SOLD
1.Units of goods sold * cost of production per unit
2.
2.Beginning Inventory + Purchases during period − Ending Inventory
3.
3. Finished production at the end of previous year + (units of production sold this year - Finished
production at the end of previous year/cost of production per unit of previous year)* cost of
production per unit this year

THANK YOU FOR ATTENTION!