Continuation of Guidelines for a Multiple-Step Income Statement
Cost of Finished Goods Sold – This section presents the breakdown of costs incurred in manufacturing the goods sold during the year. This is computed using the:
Cost of Goods Sold Formula = (Cost of Raw Materials Available for Manufacturing + Direct Costs + Finished Goods Inventory, Beginning) – Finished Goods Inventory, End.
Raw Materials Inventory, Beginning represents the value of raw materials counted as unused and unprocessed during actual year-end inventory of the preceding period.
Raw Materials In-Process, Beginning – This is the value of raw materials that went into production but were inventoried as still in process at year-end date of the preceding period.
Raw Materials Purchases - The value of additional raw materials purchased during the year.
Cost of Raw Materials Available Formula = Raw Materials, Beg. + Raw Materials In-Process, Beg + Raw Materials Purchases
Raw Materials, Inventory Ending - The value of the raw materials actually counted as still on hand and unused as of year-end inventory for the current year.
Raw Materials In-Process, Ending - This is the value of raw materials that went into production but were inventoried as still in process of production as of year-end closing for the current year.
Cost of Raw Materials Used - The value of the total raw materials used actually converted into raw materials into finished goods.
Cost of Raw Materials Used Formula - Cost of Raw Materials Available for Manufacturing – (Cost of Raw Materials Inventory, Ending + Cost of Raw Materials In-Process, Ending)
Direct Labor Costs - This represents the salaries paid to all company personnel who had a direct hand in the manufacturing process of the Cost of Raw Materials Available for Manufacture.
Direct Utility Costs - The cost of electricity, water and communication facilities used in the plant area or where the raw materials were produced and completed as Finished Goods.
Direct Overhead Costs are the indirect labor, indirect materials and supplies as well as other indirect expenses, in the sense that they may not be directly related in the manufacture of the goods sold but the nature of the expenses’ incurred was directly related to the manufacturing process.
Cost of Goods Manufactured and Available for Sale – Represents the total costs of producing the goods that were completed and added to the finished goods available for sale during the year.
Cost of Goods Manufactured and Available for Sale Formula – Cost of Raw Materials Used + Direct Costs
Finished Goods Inventory, Beginning – Represents the goods manufactured and completed from preceding year’s manufacturing process but were inventoried as still on hand and unsold during the preceding year’s closing inventory. They had been added as additional goods available for sale for the current year.
Finished Goods Inventory, Ending – This is the value of the current year’s ending inventory of goods manufactured for selling activities, but were accounted for as unsold inventory at year-end.
Gross Profit - In this multiple-step Income Statement, the gross profit is computed by deducting the Cost of Finished Goods Sold from the Net Sales.