Learning objective: Components of cost of goods sold statement and profit computation
The accountant of Model Goods Company prepared the following data for its financial year 20X9:
Rs.
Particular
Particular
Sandpaper
Materials handling
Coolants & lubricants
Indirect manufacturing labor
Direct manufacturing labor
Direct materials, 1/1/X9
Finished goods, 1/1/X9
Finished goods, 12/31/X9
Work-in-process, 1/1/X9
Work-in-process, 12/31/X9
Administration costs
32,000 Leasing costs - plant
320,000 Depreciation equipment
22,400 Property taxes -- equipment
275,200 Fire insurance equipment
2,176,000 Direct material purchases
384,000 Direct materials, 12/31/X9
672,000 Sales revenue
1,280,000 Sales commissions
96,000 Sales salaries
64,000 Advertising costs
800,000
Rs.
384,000
224,000
32.000
16.000
3,136,000
275,200
12,800,000
640,000
576,000
480,000
Required: Prepare working schedules and determine the following for the vear 20X9:
a) The amount of direct materials used;
(3 Marks)
b) The manufacturing costs added to WIP,
(5 Marks)
c) Cost of goods manufactured;
(Marks)
d) Cost of goods sold;
(3 Marks)
c) Gross profit; &
(2 Marks)
1) Net income
(4 Marks)
Answers
Just because you earn revenue doesn't mean you've made a profit. In this lesson, you'll learn about cost of goods sold, including where it fits on an income statement and how to calculate it. A short quiz follows the lesson.
Definition of Cost of Goods Sold
The cost of goods sold (COGS) is any direct cost related to the production of goods that are sold or the cost of inventory you acquire to sell to consumers. It does not include overhead expenses related to the general operation of the business, such as rent. Cost of goods sold is reported on a company's income statement.
The Income Statement and COGS
An income statement is the financial statement in which a company reports its income and expenses. If income exceeds expense during the reporting period, there is a net profit; if not, the company has suffered a loss.
COGS are reported under expenses as the costs directly related to either the product or goods sold by a company or the costs of acquiring inventory to sell to consumers. If the cost of goods sold exceeds the revenue generated by the company during the reporting period, the revenue did not generate a profit. Keep in mind that any loss due to one business activity may be offset by another income-generating activity and still result in a net profit for the company.