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6 May, 2015 - 17:10

In manufacturing, raw material is transformed with the help of labor and machinery. In a merchandising firm, only one type of inventory is maintained, and only few costs are added to the purchase price of goods to arrive at cost of goods sold. In a manufacturing firm, many and different types of costs are incurred:

  1. direct material,
  2. direct labor, and
  3. factory or manufacturing overhead.

These costs are accumulated in three inventories:

  1. materials,
  2. work in process, and
  3. finished goods.