Cost of Goods Sold Examples
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Example # 1:
Muhammad Sohail Industries submits the following information on June 30th, 2019:
| Descriptions | Rs. |
|---|---|
| Sales for the year | 250,000 |
| Raw material inventory as on July 1st, 2018 | 13,000 |
| Finished goods inventory as on July 1st, 2018 | 58,000 |
| Purchases | 102,000 |
| Purchases return | 2,000 |
| Direct labor cost | 39,000 |
| Power, heat & light | 2,000 |
| Indirect material consumed | 4,000 |
| Depreciation on plant | 3,500 |
| Depreciation on machinery | 6,000 |
| Tools expenses | 3,000 |
| Indirect labor cost | 1,000 |
| Fire insurance | 250 |
| Miscellaneous manufacturing costs | 500 |
| W.I.P inventory as on July 1st, 2018 | 12,000 |
| W.I.P inventory as on June 30th, 2019 | 16,000 |
| Raw material inventory as on June 30th, 2019 | 19,000 |
| Finished goods inventory as on June 30th, 2019 | 56,500 |
Requirement: Prepare cost of goods sold for the year ended June 30th, 2019.
Solution:
Example # 2:
During the month of August 2019, the Hazrat Bilal Corporation used Rs. 50,000 of raw material. The mixing department used 12,000 labor hours at a cost of Rs. 30,000 and finishing department used 2,000 labor hours at cost of Rs. 9.00 per hours. Factory overhead is applied at the rate of Rs. 3.30 per hours in the mixing department and Rs. 4 per hours in the finishing department.
| Description | Rs. |
|---|---|
| Inventories on August 1st, 2019: | |
| Raw materials | 16,000 |
| Material-in-process | 6,000 |
| Labor-in-process | 6,500 |
| F.O.H-in-process | 7,200 |
| Finished goods | 12,400 |
| Inventories on August 31st, 2019: | |
| Raw materials | 18,000 |
| Material-in-process | 7,000 |
| Labor-in-process | 5,000 |
| F.O.H-in-process | 6,000 |
| Finished goods | 14,000 |
The Corporation produced 25,000 units of product during the month.
Requirement:
- A schedule showing the cost of goods manufactured and the cost of goods sold.
- Calculate per unit cost of materials, labor and overhead for the August 2019 production.
Solution:
Per Unit Cost = Cost of Goods Manufactured / Units Manufactured
Per Unit Cost of Material = 49,000 / 25,000 = 1.96
Per Unit Cost of Labor = 49,500 / 25,000 = 1.98
Per Unit Cost of FOH = 48,800 / 25,000 = 1.952
Total Per Unit Cost = 1.96 + 1.98 + 1.952 = 5.892
>>> Read Cost of Goods Sold
Example # 3:
The cost department of Muhammad Talha Company on December 31st, 2019:
| Description | Rs. |
|---|---|
| Raw material January, 1 | 34,000 |
| Finished goods January 1 | 48,600 |
| W.I.P January 1 | 81,500 |
| Factory equipment depreciation | 21,350 |
| Interest earned | 6,300 |
| Raw material purchased | 364,000 |
| Direct labor cost | 162,500 |
| Indirect labor cost | 80,000 |
| Freight in | 8,600 |
| Misc. factory overhead cost | 47,900 |
| Purchases discount | 5,200 |
| Raw material December, 31 | 49,000 |
| Finished goods December, 31 | ??? |
| W.I.P December, 31 | 42,350 |
Other information:
- Finished goods inventory Jan. 1 = 300 units
- Finished goods inventory Dec. 31 = 420 units
- Sold during year = 3880 units at Rs. 220 per unit
Required:
- Cost of goods sold
- The unit cost of Finished Goods Inventory as on December 31st, 2019
- The total value of Finished Goods Inventory as on December 31st, 2019
Solution: (1)
Solution: (2)
Per Unit Cost = Cost of Goods Manufactured / Units Manufactured
Per Unit Cost = 703,300 / 4,000 (see working below)
Per Unit Cost = Rs. 175.825
Unit manufacturing working:
Total number of units sold = 3880 units
Add Finished goods inventory Dec. 31 = 420 units
Less Finished goods inventory Jan. 1 = 300 units
Units manufactured or Production Budget = 4,000 Units
Solution: (3)
Finished goods inventory cost = Closing finished goods units * Per unit cost
Finished goods inventory cost = 430 * 175.825
Finished goods inventory cost = Rs. 73,846.50
>> Practice Cost of Goods Sold MCQs
References
Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.
Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.
Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.
Good examples for CGS. Thank you so much sir…