Cost of goods manufactured affects the finished goods account in which way?

The cost of goods manufactured plays a crucial role in the flow of costs in managerial accounting, particularly regarding inventory accounts. When products are completed, their total costs are transferred from the work in process inventory to the finished goods account. This transition reflects that those goods are now available for sale.

As the cost of goods manufactured increases, it signifies that more products have been completed and are ready for sale. Therefore, the finished goods account increases with the addition of these production costs, accurately representing the value of goods that are available for sale to customers. This increase is vital for understanding the company’s inventory levels and helps management make informed decisions about production and sales strategies.

In other contexts, a decrease would suggest that goods were sold or written off, while having no effect or transferring would suggest that there is some movement of costs without directly influencing the finished goods account positively.