The components of cost of goods sold statement under the income statement of a Manufacturing Company or of any other manufacturing business can be divided into five distinct parts as mentioned below.
In components of cost of goods sold statement, Direct materials section, comprised of opening inventory, purchases, any purchases returns or allowances, and the final inventory.
- Direct labor section, indicating the costs of those employees whose work can be identified directly with the product manufactured.
- Factory overhead comprised of all those costs that assist in an indirect manner in the manufacturing of the product; such as factory supplies and depreciation of machinery. The factory overhead section does not indicate the amount of fixed and variable factory overhead, an extremely important requisite in the analytical uses of cost data. Furthermore, it must be assumed that the items are stated at actually experienced costs. Generally, a predetermined factory overhead rate is used to charge overhead to work-in-process.
- Work in process inventories, representing costs in process at the beginning and costs still in process at the end of the fiscal period under this cost of goods sold section of income statement.
- Finished goods inventories, beginning and ending.
However, components of cost of goods sold statement under income statement should not be confused with Cost of Goods Manufactured Statement.
