ITPEC FE Morning April 2021 Question 78

Beginning product inventory + product manufacturing cost − ending product inventory — cost of goods sold counts only finished products that were sold.

Finished products available for sale in the period are those in stock at the start plus those completed during the period (the product manufacturing cost). The ones still in stock at the end were not sold, so they are subtracted. Everything in the formula must be finished products.

Answer (b)

Why not others:

• •(a) — material, labor and expenses of the period is the total manufacturing cost incurred; it ignores both work-in-process and product inventories
• •(c) — starts from finished products but subtracts work-in-process inventory, mixing two different stages of inventory
• •(d) — the work-in-process adjustment belongs to the calculation of product manufacturing cost from the period's costs, not of the cost of goods sold

Key rule: Two chained formulas: WIP at beginning + total manufacturing cost − WIP at end = product manufacturing cost; product inventory at beginning + product manufacturing cost − product inventory at end = cost of goods sold.

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