Video: Cost Flow of Manufacturing Companies

In this lesson, Nick Palazzolo, CPA, breaks down the cost flow process within manufacturing companies, clarifying its relevance to cost accounting. He starts by piecing together the fundamental inputs of raw materials, labor, and overhead to illustrate how these elements culminate in the cost of goods manufactured. Nick then leads into the transition of these costs into the finished goods and finally into the cost of goods sold. To contrast, he briefly compares this to merchandising companies, outlining the simpler path from cost of goods purchased to cost of goods sold for companies that don't manufacture their products. The explanation is tailored to give a clear sense of how these processes slot into the larger framework of a company's operations.