How to approach it
- Allocate shared costs first: freight by weight, rent by area, utilities and fixed costs by the given ratios.
- Direct materials consumed = opening + purchases + freight − closing.
- Indirect materials consumed go to factory overhead.
- Add direct labour and factory overhead; adjust for WIP to reach cost of goods manufactured.
- Leave finished goods and admin/selling costs out of the COGM statement.
Key rules to apply
- Prime cost = direct materials + direct labour (+ direct expenses).
- Supervisors' salaries and material store costs are factory overhead; the finished goods warehouse and offices are not manufacturing costs.
Answer layout
| Cost of goods manufactured | Rs |
|---|---|
| Direct materials consumed | |
| Direct labour | |
| Prime cost | |
| Factory overhead | |
| Total manufacturing cost | |
| Add opening WIP / less closing WIP | |
| Cost of goods manufactured |
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Indirect materials in prime cost or supervisors as direct labour (examiners' point).
- Admin costs or finished goods inventories inside the statement.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q5 without copying it.
Original practice question
COGM with shared costs
Rs '000: direct materials opening 8,000, purchases 70,000, freight on them 2,000, closing 9,000. Indirect materials opening 500, purchases 3,000, freight 500, closing 700. Direct labour 20,000. Supervisors 4,000. Rent 10,000 split by area: production 60%, direct material store 15%, finished goods warehouse 10%, offices 10%, indirect material store 5%. Utilities 6,000, 90% production. WIP opening 5,000, closing 6,200.
Required: Prepare the statement of cost of goods manufactured.
Worked solution
| Rs '000 | |
|---|---|
| Direct materials: 8,000 + 70,000 + 2,000 − 9,000 | 71,000 |
| Direct labour | 20,000 |
| Prime cost | 91,000 |
| Indirect materials: 500 + 3,000 + 500 − 700 | 3,300 |
| Supervisors | 4,000 |
| Rent: 80% (production + both material stores) | 8,000 |
| Utilities: 90% | 5,400 |
| Factory overhead | 20,700 |
| Total manufacturing cost | 111,700 |
| Opening WIP | 5,000 |
| Closing WIP | (6,200) |
| Cost of goods manufactured | 110,500 |
Answer: Rs 110.5m.