Empower Your Manufacturing Business with More Revenue for Manufacturing

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in this presentation we will take a look at an income statement for a manufacturing company we're gonna first take a look at the standard structure for an income statement so that we can then compare and contrast it to a CVP or a contribution margin income statement so this is going to be the standard type of income statement that we will compare and contrast to we're going to generate this from a trial balance the only reason we're gonna have the trial balance here is to see that we have something that is in balance that will then make into the income statement just to give us some awareness or remember the fact that the income statement is gonna be part of the financial statements which of course will include the balance sheet and the income statement when we consider the full double-entry accounting system we're thinking of these these items being linked together so very simplified trial balance all we have is cash on the balance sheet and accounts payable assets liabilities then and then we got the retained earnings and then we have where we are focusing in on here this is all balance sheet stuff the income statement where we have the revenue the direct materials the direct wages the sales commission the taxes the maintenance that depreciation and so on revenue then minus the expenses given us this net income seventy two thousand two hundred and seventy revenue in our case being a credit represented with brackets the expenses being debits represented with non bracketed numbers and the credit here minus all the expenses gives us the income not a loss credit balance of seventy two thousand two seventy all of the debits and credits from the cash on down to the tax to the income taxes would add up to zero the debits minus the credits add up to zero so we are concentrating here we're just gonna take these numbers and put them into the structure of a standard type of financial statement income statement something that would be close to generally accepted accounting principles then compare and contrast that to CVP or a contribution margin type of income statement in future presentations so the income statement would typically start off with revenue for a manufacturing company might be called sales but the revenue income sales and that of course is just pulling over the revenue numbers who are pulling over that number removing the credit putting it into a plus and minus formats here we're gonna put it on the outside because we're gonna have some subtotals that will be then generated then we have a subcategory typically in a normal financial statement we're not going to see this in a contribution margin type of income statements we will see it in a generally accepted accounting principle type of income statement grouped by category not by behavior of cost as we will see in a contribution margin that category being cost of goods sold the category related to the inventory the cost of the inventory of the things that we are selling and that's gonna include notice the : again means that we're gonna indent it have some type of subcategory it includes the direct materials that's part of the inventory it's gonna be pulled into the inside because it's going to be a subcategory which we will then output to the outside with the cost of goods sold once we've completed it and then we're gonna have the wages so we've got the wages that's going to be part this is direct wages part of the wages that were on the materials that we are producing then we had the overhead so the overhead is going to be part of the costs of the production and remember that's the bucket of everything else that we're gonna put into the into the production that doesn't fit directly into the direct materials and direct wages or in other words if it's a job cost system it doesn't fit directly in a job process cost system it doesn't fit directly into any particular process but it should be applied out to them and that's going to include most of the things that we see in a problem if it says something that it's a factory involves in it so here we have the taxes on the factory so we're gonna add that in there it's gonna be thirteen five hundred then we've got maintenance on the factory will say that's twenty seven thousand and then we have depreciation eighty-seven thousand and then lease we're gonna say is twenty seven thousand on the factory that's 150 four thousand five hundred so 150 four thousand to five hundred and that if we add those up then the 247 nine fifty the 387 150 and 150 for five hundred is gonna be the total cost of goods sold remember that's related to the grouping of the items for the inventory that we sold that's going to give us the gross profit now we're in the outer column revenue minus the cost of goods sold is what's going to give us that gross profits can be a very important number for manufacturing companies because we want to know the relationship of the costs related to the inventory and the revenue then we're gonna take out from that the operating expenses which includes selling expenses and administrative expenses we typically group once again by the category by what it's for what is it what's the purpose of the expense so in this case we've got these sales and commissions so we're gonna say that ninety five seven we didn't have a rent on the sales office that's going to be the 77,000 so here's the 77,000 then we're gonna have the total of selling expenses the total selling expenses we'll put into the outer column that being the ninety five seven plus of 77041 seventy two thousand seven hundred we're gonna break that out into the outer column next we're gonna have the type of category of the administrative type of expenses once again grouping these items by what they do what their function is administrative salaries of the 107 and it will include the rent on the administrative office of the 50,000 the 107 the 50,000 that adds up to the 157 thousand for the administrative expenses we put into the inner column now know these are both going to be operating type expenses so if we add up the 172 seven plus the one 57,000 that's going to give us the total operating expenses of three hundred and twenty nine thousand seven hundred were now in this outer column we left off in the outer column at the gross profit now we're gonna subtract out the cell in the operating expenses which of course included these cell and expenses at administrative to 177 to 157 thousand or the 329 seven so only two numbers we deal with here here minus here that's gonna give us the end of the income before income taxes one hundred twenty thousand four hundred and fifty and then we calculate the taxes on it to give us the seventy two thousand seven hundred forty nine come so it's gonna be the standard type of income statement very useful very good to tell us what happened in the past also great for a group in this information by the purpose what did we have these expenses for in order to help us to generate that revenue what category of what it helped us to do in order to get to that goal of revenue generation what it's not good for is that projection into the future because of the grouping that we had to use in this format to group by what it's for we had to group things that behave differently as we change the level of project production and therefore when we project into the future we start to do the analysis in terms of what if analysis I would call it basically what if we made this many units what if we solve this many units we can have an infinite number of types of projections that we can have into the future we can't manipulate to this income statement as easily for those types of projections it would be much easier for us to do so if we then group this type of financial data into more of a contribution margin type of income statement a CVP analysis type of income statement one they can be easily manipulated with very few factors to then change that we can this basically automate the change as we go forward so that we can run many different scenarios that's what we'll be comparing this traditional income statement to in future presentations