Free Essay

Cost of Goods

In: Business and Management

Submitted By Rrwburke
Words 278
Pages 2
Cost of Goods

To be able to calculate the cost of goods sold, you will need to calculate the goods with the “beginning inventory, and then add the cost of goods purchased minus the ending inventory equals cost of goods sold”.(Kimmel, P. D., Weygandt, J. J., & Kieso, D. E., 2011, p.287). The following Items makeup the cost of goods sold are the following items; labor expenses, cost of items on inventory and shipping cost or freight cost. There are two different types of systems used to calculate the cost of goods, and they are the Periodic System of inventory and there is the Perpetual System of inventory. The Periodic system takes inventory measured over time by the inventory in the beginning and then taking an inventory at the end of a period of time measurement. Even though, this way is the easiest it leaves room for mistakes to be made since it is only done at the end of a period leaving room for problems in actual inventory on hand. Whereas the Perpetual system takes into consideration freight cost, discounts and returns and is done on a daily basis. This is probably the best way to do inventory since it takes a daily sales count and is able to be seen by other stores or place that are connected with them so customers can see where another store or business may have that which they are in need of and this keeps inventory to a minimum and helps reduce overhead.

Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.…...

Similar Documents

Premium Essay

Cost

...Material Cost Classifications Consult Ch. 6 & 7 of Health Care Finance and other sources to complete the form. This worksheet requires you to match the definitions and examples of types of cost, and the types of centers where costs occur. Part 1: For each term in Column A, select the correct definition from Column B on the right. Write the corresponding letter of the definition next to the term. Column A F 1. Indirect costs A 2. Direct costs D 3. Fixed costs I E H B C G 4. Variable costs 5. Step-fixed costs 6. Responsibility centers 7. Revenue centers 8. Cost centers 9. Shadow cost centers Column B – Definitions A. Costs incurred directly as a result of providing a specific service or good B. Centers charged with controlling costs and generate revenue C. Have no revenue budget and no obligation to earn revenue D. Costs that do not vary as service volume varies E. Fixed over some range of service volume, but rise to a new level for a higher range of service volume F. Costs that cannot be tied directly to the patient’s stay in the bed G. Exist as budgets on paper only H. The places where costs occur and have budgets I. Costs that change as volume changes Part II: For each real-world example, select the correct term from the list on the left. Write the corresponding letter of the real-world example next to the term. Column A K 1. Indirect costs M 2. Direct......

Words: 423 - Pages: 2

Premium Essay

Reporting of Costs of Goods Sold

...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......

Words: 10953 - Pages: 44

Premium Essay

Cost Cost

...Part of the process of pricing your product is including the costs of producing that product. Those costs include the direct and indirect costs associated with producing your product. Direct Costs Direct costs are costs that can be easily traced to a particular object (also called a cost object), such as a product, the raw materials used to manufacture a product, or the labor associated with the work to produce the product. If your company produces a widget and a production manager is hired to oversee production of that widget, then the production manager's salary is a direct cost. If you own a carpet cleaning business, which is a service organization, and you hire workers just to clean carpets, their wages are direct costs. Direct costs are often, but not always, variable costs. Variable costs increase as more units of the product are manufactured. As a result, raw materials are variable and direct costs. But, if there is a supervisor overseeing the manufacturing of this particular product, their salary is probably the same regardless of how much of the product is manufactured, so it is a fixed cost. Direct Materials and Direct Labor The most common direct costs are direct materials and direct labor. Direct materials are the materials that can be specifically identified with the product. If you are a furniture maker, your direct materials would be the wood that goes into making your furniture along with the nails, varnish, and other products that you apply......

Words: 644 - Pages: 3

Premium Essay

Elements of Compliance Costs- Lesson from Malaysian Companies Towards Goods and Services Tax

...Canadian Center of Science and Education Elements of Compliance Costs: Lesson from Malaysian Companies towards Goods and Services Tax (GST) Mohd Rizal Palil1, Rosiati Ramli1, Ahmad Fariq Mustapha1 & Norul Syuhada Abu Hassan1 1 School of Accounting, University Kebangsaan Malaysia, Malaysia Correspondence: Mohd Rizal Palil, School of Accounting, Faculty of Economics and Management, University Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia. E-mail: mr_palil@ukm.my Received: May 6, 2013 Accepted: June 20, 2013 Online Published: August 30, 2013 doi:10.5539/ass.v9n11p135 Abstract URL: http://dx.doi.org/10.5539/ass.v9n11p135 Various parties including academics, professionals and the society (the potential GST payers) are arguing about the introduction of GST in Malaysia. Goods and Services Tax (GST) or Value Added Tax (VAT) is a consumption tax imposed on the sale of goods and services. The Malaysian government introduce this potential tax mechanism, in order to increase the existing tax bracket and replacing the long-implemented service and sales taxes. With the introduction of GST, the Malaysian government felt it would provide them with the prospect to reduce the rates of individual and corporate income tax. However, do all companies particularly small and medium enterprises (Companies) ready to adopt the systems efficiently? If they could adopt the system, how much their compliance costs involved such as developing new software, human resource training......

Words: 8066 - Pages: 33

Premium Essay

Cost of Goods

...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...

Words: 352 - Pages: 2

Free Essay

Is the Corporate Social Responsibility Conflicting with Wal-Mart’s Cost Leadership Strategy? Is Wal-Mart Good for America?

...Neulijan (Julian) Kore MAN 4720 Prof. Ping Zhang Is the corporate social responsibility conflicting with Wal-Mart’s cost leadership strategy? Is Wal-Mart good for America? Before analyzing Wal-Mart’s corporate strategy, it is important to identify what business it is in.  For example, Wal-Mart is in the business of selling consumer goods such as TV’s, sheets, clothes, then it is pursuing a concentric strategy by entering in the food business.  However, this changes depending on how you analyze what business Wal-Mart is in.  Wal-Mart is in the business of selling everything customers need in their everyday lives.  This includes the consumer goods listed above as well as food-service items.  Wal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to really differentiate themselves from competitors and provide no-frills self-service stores that always provide the lowest prices.  Wal-Mart has built enough purchasing power with suppliers that they can dictate the prices and go in and change suppliers manufacturing processes in order to wring out more and more savings for the consumer.  Everything that Wal-Mart does from calling suppliers collect to having execs double up in hotel rooms, is to save the customer money.  While they do try to provide good customer service on top of low prices, Wal-Mart’s strength is low-prices.  No one has such a supplier and distribution network like Wal-Mart that allows such low prices. But in the past......

Words: 722 - Pages: 3

Premium Essay

Cost of Goods

...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......

Words: 442 - Pages: 2

Premium Essay

Costs of Goods Sold

...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......

Words: 272 - Pages: 2

Free Essay

Cocacola and Pepsi Cost of Goods Sold

...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......

Words: 685 - Pages: 3

Free Essay

Cost of Goods

...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.......

Words: 337 - Pages: 2

Free Essay

Acc 290 Cost of Goods Sold

...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......

Words: 273 - Pages: 2

Premium Essay

Cost of Good Sold

...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......

Words: 300 - Pages: 2

Premium Essay

Cost of Good

...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......

Words: 319 - Pages: 2

Premium Essay

Cost

...Solution of 2012 Mid Term Exam Cost Accounting- Third Year Question No. One: 1- ABC Company Schedule of Cost of Goods Manufactured For October Direct material costs Beginning inventory of Direct Materials 4,000 Direct materials purchased ………………………135,000 =Cost of direct materials available for use………..139,000 (-)Ending inventory of Direct Materials………….. (5,000) Direct materials used…………………………………………………………….…134,000 Direct manufacturing labor costs………………………………………………….…50,000 Manufacturing overhead costs Salaries of factory supervisors………………….....15,000 Salaries of factory managers ……………………...10,000 Factory supplies (3000+8000-2500)……………......8,500 Factory rent…………………………………………9,500 Factory depreciation……………………………....25,000 Total Manufacturing overhead costs …………………………………………….…...68,000 Total Manufacturing costs………………………………………………………….252, 000 Add beginning work-in-process inventory, ……………………………………….…13,000 Deduct ending work-in-process inventory, ………………………………………… (15000) Cost of goods manufactured (to income statement) ………………………………$ 250,000 2- ABC Company Income Statement For March 2011 Revenues ( 8000* 50)………………………………………………………………400,000 Cost of units sold: Beginning finished goods, ……………………………… 0 Cost of goods manufactured ………………………….250,000 Cost of goods available for sale……………………….250, 000 Ending finished goods (2000 units* $25)………....... (50,00) Cost of Units sold…………………………………………………………………….(200,000) Gross......

Words: 472 - Pages: 2

Premium Essay

Cost

...CLASSIFICATION OF COSTS: Manufacturing We first classify costs according to the three elements of cost: a) Materials b) Labour c) Expenses Product and Period Costs: We also classify costs as either 1      Product costs: the costs of manufacturing our products; or 2      Period costs: these are the costs other than product costs that are charged to, debited to, or written off to the income statement each period. The classification of Product Costs: Direct costs: Direct costs are generally seen to be variable costs and they are called direct costs because they are directly associated with manufacturing. In turn, the direct costs can include: Direct materials: plywood, wooden battens, fabric for the seat and the back, nails, screws, glue. Direct labour: sawyers, drillers, assemblers, painters, polishers, upholsterers Direct expense: this is a strange cost that many texts don't include; but (International Accounting Standard) IAS 2, for example, includes it.  Direct expenses can include the costs of special designs for one batch, or run, of a particular set of tables and/or chairs, the cost of buying or hiring special machinery to make a limited edition of a set of chairs. Total direct costs are collectively known as Prime Costs and we can see that Product Costs are the sum of Prime costs and Overheads. Indirect Costs: Indirect costs are those costs that are incurred in the factory but that cannot be directly......

Words: 767 - Pages: 4