...Cost of Goods Laura Smalt XACC/290 November 30, 2014 Adrienne Walker Cost of Goods Each month, part of completing the accounting cycle includes calculating the cost of goods sold to arrive at the company gross profit. Cost of goods sold reflected on the company balance sheet. Actual calculations will vary depending on whether a company is manufacturing a single product or multiple products or just redistributing products. Investigating cost variations from one month to another can help management improve efficiency and control product costs. Find the beginning inventory for the month you are calculation. This will be the same number as the ending inventory from the previous month or week. You should be able to find this number on last month’s balance sheet. Add the cost of direct material purchases made during the month to the beginning inventory number. These materials used in the production of your production of your product. Add the cost of direct labor used for the month in manufacturing the goods. In a manufacturing process, the direct labor includes workers running manufacturing equipment and their direct supervisors. The total cost of direct labor includes wages, paid, employer taxes such as Social Security and any benefits paid by the company for these employees. Calculate the subtotal of the beginning inventory, plus cost of direct materials purchased, plus the cost of direct labor. This will give you the total goods available for sale for the month. Subtract...
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...Cost of Goods Sold XACC/290 Calculating Cost of Goods Sold There are different ways to calculate the cost of goods sold. The most used and the easiest would be the periodic method of inventory. This is where you take the beginning inventory and add the inventory purchases and then subtract the end inventory then you will get the cost of a goods sold. This is the one that make sense because you take the accounting period and then just use that to get the answer. The only reason this one could come up with some wrong figures is because this does not take into account any items that were lost, stolen or damaged throughout the accounting period. Another method is the first-in, first-out method, also know was FIFO. This method is very simple they assume the oldest units in the inventory are always the first sold. Then the last-in, first-out method is just the reverse also known as LIFO. This means the newest items that are in inventory are the first ones sold. These methods are not very exact. Lastly you have the average cost method which is a good idea, this is taking the average of the cost and then using that to factor in cost of goods sold. So taking the beginning inventory and adding the purchases in dollars and then dividing that by the beginning inventory plus the purchases in units. This will get you the average cost per unit. Then you take the average cost per unit and multiply that by units sold and you will get cost of goods sold. Then you would...
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...Cost of Goods Name XACC/290 Date Instructor Cost of goods sold or COGS is the accumulated total of all the cost used to produce products or services, which have been sold or completed (Accounting Tools). On an income statement the cost of goods sold is subtracted from the revenues to obtain a company’s gross margin. The formula used to calculate the cost of goods sold in simple form is: Beginning inventory plus purchases less ending inventory equals cost of goods sold. Five methods can be used to determine the cost of the inventory items. 1) Periodic method, which a method used mostly by small business due simplicity and cost. In this method, inventory is counted at the end of every period and deducted from beginning inventory and purchases. 2) Average method is based on the average cost of items available for sale during a period. 3) Perpetual method is the most accurate and is widely used. With this method inventory is kept count at all times. 4) FIFO or first-in, first-out, use the cost of beginning inventory or oldest inventory to base calculations on. 5) LIFO or last-in, first-out bases the calculation of cost of the item on the last item purchased. This method is often used to cut tax cost assuming the last item bought was more costly. Many items factor into figuring the cost of an item including, materials, direct labor, overhead, freight, cost of goods from a manufacturer, and even cost of services or billable hours. Freight can be FOB shipping point or destination...
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...XACC/290 October 18, 2013 Cost of Goods This paper will discuss the cost of goods. It will discuss how to calculate and the items involved with the cost of goods. The primary source of revenue with merchandising Operation Company’s like Wal-Mart is sales (Kimmel, 2011). Cost of Goods Sold According to Kimmel (2011) the cost of goods “is the total cost of merchandise sold during the period” (p. 228). The way to calculate cost of goods sold is the beginning Inventory plus Inventory Purchases minus End Inventory equals Cost of Goods Sold (Kimmel, 2011). An example of calculating cost of goods; Donna has a business that sells dolls on eBay. The inventory count at the beginning of January shows that she has $500 worth of inventory on hand. Over the month, she purchases another $2,000 worth of dolls. Her inventory count at the end of January shows that she has $500 of inventory on hand. When using this equation, Donna’s cost of goods sold for January is $2000, this is how you calculate it: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold 500 + 2,000 - 500 = 2,000 Make Up of Cost of Goods Sold The items used that make up cost of goods sold will start with the purchase of the items, the cost of bringing good to point of sale, and the value of the goods in stock at the beginning of a specific period (Kimmel, 2011). Conclusion Companies will use a specific inventory system that fits their scenario to maintain an accurate account of...
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...Cost of Goods xxxxx University of Phoenix Cost of Goods According to Kimmel, Weygandt, and Kieso (2011), cost of goods “The cost of goods sold is the total cost of merchandise sold during the period. This expense is directly related to the revenue recognized from the sale of goods” (p. 228). Many companies carry cost of goods—even those that offer services. Companies with cost of good must be able to calculate and know how much of a cost these carry. A formula used to calculate cost of good sold is as follows: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold Nonetheless, the above formula only applies to the periodic inventory system. According to Kimmel, Weygandt, and Kieso (2011) companies have two systems to keep inventory, one is the periodic system—formula described above—and the other is the perpetual system. In the perpetual system one cannot calculate the cost of goods as easily, but instead special software is used—i.e a computer system with capacity of tracking sales as well as costs immediately. Furthermore, cost of goods sold entails every type of cost involved in production the good. For instance freight costs to transport the raw material would be part of cost of goods sold. In addition to this would be the supplies and resources used to product the good as well as the overhead expenses—as well as depreciation. Overall, one can see...
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...Cost of Goods Sold Theresa Gillette XACC/290 - PRINCIPLES OF ACCOUNTING I November 9, 2014 Instructor: RASHAD ABDULLAH Cost of Goods Sold As an example of how it would be done I have added a diagram showing how you would process the cost of the goods sold. First you need to have the cost of the beginning inventory then you have to add the amount of the purchases and subtract the ending amount of the inventory. When everything is said and done it equals out to the cost of the goods that have been sold. Cost of goods sold is the accumulated total of all the costs used to create a product or service in this case it is which has been sold. All of these costs fall into a general sub category of direct labor as well as the materials, and overhead stock. The cost of goods sold is considered to be a part of the labor and payroll taxes. Beginning Inventory |+ |Purchases |- |Ending Inventory |= |Cost of Goods Sold | |$600 |+ |$1500 |- |$400 |= |$1700 | |$800 |+ |$2400 |- |$600 |= |$2600 | |There is also a first in and first out method that helps with keeping track of the inventory. So when things come in the stuff that is older should move forward and the new stuff should go in back. I believe that when it comes down to it the way we handle the sales of the products then the company should not have a problem with keeping track of the funds coming in and going out. Below I have added the example of how it should work. I have done...
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...Interpreting Cost of Goods Sold and Inventory ANSWERS TO QUESTIONS 1. Inventory often is one of the largest amounts listed under assets on the balance sheet which means that it represents a significant amount of the resources available to the business. The inventory may be excessive in amount, which is a needless waste of resources; alternatively it may be too low, which may result in lost sales. Therefore, for internal users inventory control is very important. On the income statement, inventory exerts a direct impact on the amount of income. Therefore, statement users are interested particularly in the amount of this effect and the way in which inventory is measured. Because of its impact on both the balance sheet and the income statement, it is of particular interest to all statement users. 2. Fundamentally, inventory should include those items, and only those items, legally owned by the business. That is, inventory should include all goods that the company owns, regardless of their particular location at the time. 3. The cost principle governs the measurement of the ending inventory amount. The ending inventory is determined in units and the cost of each unit is applied to that number. Under the cost principle, the unit cost is the sum of all costs incurred in obtaining one unit of the inventory item in its present state. 4. Goods available for sale is the sum of the beginning inventory and the amount of goods purchased during the period. Cost of goods sold...
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...Cost of Goods Kattlin Diaz XACC/290 December 13, 2014 Kevin Goff The calculations of cost of goods sold is one of the more difficult accounting tasks. There are many variables that need to be taken into account. The size of a business, the type of business, and the accounting system used are also factors that must be used to make a determination between the periodic and the perpetual system. These two main systems are what is used for calculating cost of goods sold. The perpetual method is one that I am in favor of because it is a more up-to-date method. The use of current technology gives this system a clear advantage, and the cost for this technology is an expense worth taking. In the perpetual system, companies maintain detailed records of the cost of each inventory purchase and sale. This gives the company continuous track of the inventory that should be on hand for every item and the cost of goods sold each time a sale occurs. The second system is the periodic system. In this system companies do not keep detailed inventory records of goods sold throughout the period, but rather calculate the cost of goods sold only at the end of their accounting period. This is the time when the company takes a physical inventory and calculates the cost of goods sold. Overall, the cost of goods sold is a very important part of business and helps companies like Wal-Mart know what is selling and what is not. I am glad that we have computers and programs that make this...
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...a. What are the likely reasons that the cost of goods sold to sales percentage for Coca-Cola is lower than that for PepsiCo? Generally when a company has higher COGS compared to another, the first place that one should look is the SG&A to determine if there is a different method of allocating costs between the two companies. Such was the case in the P&G, Colgate and Unilever case that we investigated, whereas Unilever relies more heavily on COGS, while P&G and Colgate rely more on SG&A. Upon comparison between Pepsi and Coca-Cola in this aspect, it is surprising to evidence that while the COGS are disproportionately higher for Pepsi, their SG&A are very similar. This would mean that their cost distribution is similar, and yet for Pepsi there should be something additional that is raising their COGS considerably. To this end, I have two theories, which are not mutually exclusive: (i) Competitors but different segments: Although both companies are presumably competitors, it is evident that Coca-Cola engages almost exclusively in beverages, where Pepsi also engages in the manufacture and distribution of packaged foods. Therefore, their peer comparison must be done under the optic that PepsiCo has an additional commercial activity to that of Coca-Cola. This is evidenced in their annual report by which almost half of their activity is in Food. Therefore, it would we safe to state that the COGS that are greater in comparison to Coca-Cola might come from the added expenses...
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...…………………. Direct materials used ……………………. 705,000 Cost of goods manufactured: Beginning work in process ……………… 120,000 Direct materials used ……………………. 705,000 Direct labor ……………………………… 135,000 Manufacturing overhead ………………… 370,000 Ending work in process …………………. Cost of goods manufactured …………... 1,200,000 2. | |Cost |Cost Type | | |a. The cost of the memory chip used in the radar sets |Product Cost | | |b. Factory heating costs |Product Cost | | |c. Factory equipment maintenance costs |Product Cost | | |d. Training costs for new administrative employees |Period Cost | | |e. The cost of the solder that is used in assembling the radar sets |Product Cost | | |f. The travel costs of the company’s salespeople |Period Cost | | |g. Wages and...
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...PROBLEM 3-46 (35 MINUTES) 1. Predetermined overhead rate = budgeted overhead ÷ budgeted direct-labor cost = $5,460,000 ÷ $4,200,000 = 130% of direct labor cost 2. Additions (debits) total $15,605,000 [$5,600,000 + $4,350,000 + ($4,350,000 x 130%)]. 3. The finished-goods inventory consisted of job no. 2143, which cost $351,500 [$156,000 + $85,000 + ($85,000 x 130%)]. 4. Since there is no work in process at year-end, all amounts in the Work-in-Process account must be transferred to Finished-Goods Inventory. Thus: Finished-Goods Inventory 15,761,800* Work-in-Process Inventory 15,761,800 *Beginning balance in Work-in-Process Inventory + additions to the account: $156,800 + $15,605,000 = $15,761,800 5. Finlon’s applied overhead totals 130% of direct-labor cost, or $5,655,000 ($4,350,000 x 130%). Actual overhead was $5,554,000, itemized as follows, resulting in overapplied overhead of $101,000. |Indirect materials used | $ 65,000 | |Indirect labor | 2,860,000 | |Factory depreciation | 1,740,000 | |Factory insurance | 59,000 | |Factory utilities | 830...
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...1 Cost of Goods Available for Sales FIFO Amount Units Cost of Goods Sold 26,400.00 740 Endng Inventory 33,040.00 200 59,440.00 940 LIFO Amount Units Cost of Goods Sold 24,000.00 740 Endng Inventory 35,440.00 200 59,440.00 940 Specific Identification Amount Units Cost of Goods Sold 24,000.00 740 Endng Inventory 35,440.00 200 59,440.00 940 Weighted Average Amount Units Cost of Goods Sold 25,384.00 740 Endng Inventory 34,056.00 200 59,440.00 940 2 to 3 A. FIFO Goods Purchased Cost of Goods Sold Inventory Balance Date Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost January 1 Beginning Balance 600 44.00 26,400.00 February 10 200 40.00 8,000.00 600 44.00 34,400.00 200 40.00 March 13 100 20.00 2,000.00 600 44.00 36,400.00 200 40.00 100 20.00 March 15 400 44.00 17,600.00 200 44.00 18,800.00 200 40.00 100 20.00 August 21 160 60.00 9,600.00 ...
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...April 10 | Sale | 60 | 5,000 | 300,000 | April 19 | Sale | 30 | 5,000 | 150,000 | April 28 | Purchase | 100 | 2,200 | 220,000 | Required: 1. Record the inventory, purchases and cost of goods sold in a Perpetual Inventory record using the FIFO method. 2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold account. Assume that all sales were on account. 3. Determine the gross profit from sales for the period. Sales Revenue: $400,000 + $250,000 + $300,000 + $150,000 = $1,100,000 Cost of Goods Sold: $126,000 + $90,000 + $110,000 + $60,000 = $386,000 Gross Profit: Sales Revenue – Cost of Goods Sold $1,100,000 - $386,000 = $714,000 4. Determine the ending inventory value at LCM (Market price $ 1800 per unit). 5. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of: a) Rising prices and I. FIFO gives a better indication of the ending inventory value. II. FIFO increases net income because old inventory (lower price) is used to value the cost of goods sold. This increases company taxes. III. LIFO is not a good indication of the ending inventory value. IV. LIFO results in lower net income because cost of goods sold is higher. This decreases company taxes. b) Declining prices. I. LIFO gives a better indication of the ending inventory value....
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... Boots parkas Historical cost $190 $106 $53 Selling price 212 145 73.75 Cost to distribute 19 8 2.50 Current replacement cost 203 105 51 Normal profit margin 32 29 21.25 Determine the following: a) the two limits to market value (i.e., the ceiling and the floor)that should be used in the lower-of-cost-market computation for risk, b) the cost amount that should be used to value the lower-of-cost-or-market comparison of boots, and c) the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market. (a) Ceiling $193.00 ($212 – $19) Floor $161.00 ($212 – $19 – $32) (b) $106.00 (c) $51.00 BE 9-2 Floyd Corporation has the following four items in it ending inventory. Item Cost Replacement cost Net Realizable value(NRV) NRV- Normal PM Jokers $2,000 $2,050 $2,100 $1,600 Penguins 5,000 5,100 4,950 4,100 Riddlers 4,400 4,550 4,625 3,700 Scarecrows 3,200 2,990 3,830 3,070 Determine the final lower-cost-or-market inventory value for each item. Item | | Cost | | Designated Market | | LCM | Jokers | | $2,000 | | $2,050 | | $2,000 | Penguins | | 5,000 | | 4,950 | | 4,950 | Riddlers | | 4,400 | | 4,550 | | 4,400 | Scarecrows | | 3,200 | | 3,070 | | 3,070 | BE 9-3 Kumar Inc. uses a perpetual inventory system. At January 1, 2014, inventory was $214,000 at both cost and market value. At December 31, 2014...
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...Accounts Payable | 800 | | Inventory | | 800 | (Return inventory on account) | | November 11 | | | | Accounts Payable | 7,200 | | Inventory | | 144 | Cash | | 7,056 | (Pay on account less 2% discount)($110 = $5,500 × 2%) | | November 16 | | | | Accounts Receivable | 13,000 | | Sales Revenue | | 13,000 | (Sell inventory on account) | | Cost of Goods Sold | 9,800 | | Inventory | | 9,800 | (Cost of inventory sold) | | ($9,800 = ($95 × 50 units) + ($101 × 50 units)) | | November 20 | | | | Cash | 13,000 | | Accounts Receivable | | 13,000 | (Receive cash on account) | | Problem 6-6B (continued) Requirement 1 (continued) November 21 | | Debit | Credit | Inventory | 6,300 | | Accounts Payable | | 6,300 | (Purchase inventory on account) | | November 24 | | | | Cash | 8,100 | | Sales Revenue | | 8,100 | (Sell inventory for cash) | | Cost of Goods Sold | 7,270 | | Inventory | | 7,270 | (Record cost of inventory sold)($7,270 = ($101 × 20 units) + ($105 × 50 units)) | Requirement 2 November 30 | | Debit | Credit | Cost of...
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