Like the merchandising arts and crafts business, a manufacturing business income statement will have revenue, cost of goods sold and general and administrative expenses. However, the cost of goods sold section for a manufacturing business is more complicated.
When you manufacture your goods, additional elements enter into the cost. You'll have material costs, and the associated labor and overhead costs to convert raw material to a finished good. A manufacturing company has three inventories rather than one: raw materials, goods in process, and finished goods.
- Raw materials consist of all the items you buy to make your arts and crafts products. For example, a clothing designer will have fabric, notions and patterns.
- Work in process are all your items that you are in the middle of making at the end of the financial period. For example, if the clothing designer has five dresses in various stages of completion, work in process is the value of those five dresses.
- Following along in that same line of logic, the value of all completed dresses that are not yet sold to merchandisers are included in your finished goods inventory.
