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How does a manufacturing company calculate cost of goods sold? How is this different from a merchandising company?

Short Answer

Expert verified

The cost of goods sold of manufacturing company is calculated by Beginning Finished goods inventory plus cost of goods manufactured less ending finished goods inventory and in merchandising company Beginning merchandise inventory plus purchases and freight in less ending merchandise inventory.

Step by step solution

01

Step-by-Step SolutionStep 1: Calculation of cost of goods sold in manufacturing company

In a manufacturing company, the activities in the finished goods inventory provides information about the COGS. Cost of goods sold is calculated with the formula which is Beginning Finished goods inventory plus cost of goods manufactured less ending finished goods inventory.

02

Difference in calculation of cost of goods sold for merchandising company

For a merchandising company, cost of goods sold is calculated by using the formulae Beginning merchandise inventory plus purchases and freight in less ending merchandise inventory. In merchandising company, the activity in the merchandise inventory account provides the information for determining COGS.

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Most popular questions from this chapter

Computing cost of goods manufactured

Consider the following partially completed schedules of cost of goods manufactured. Compute the missing amounts.

Banner, Inc. Larryโ€™s Bakery Sports Gear

Beginning Work-in-Process Inventory \( (a) \) 40,800 \( 2,200

Direct Materials Used 14,400 35,900 (g)

Direct Labor 10,300 20,100 1,900

Manufacturing Overhead (b) 10,000 900

Total Manufacturing Costs Incurred during the Year 45,200 (d) (h)

Total Manufacturing Costs to Account for 55,400 (e) 8,300

Ending Work-in-Process Inventory (c) (25,500) (2,600)

Cost of Goods Manufactured \) 50,500 \( (f) \) (i)

Match the term with the correct definition.

1. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services while meeting organizational objectives. Requires improving quality and eliminating defects and waste.

2. Use of the Internet for business functions such as sales and customer service. Enables companies to reach customers around the world.

3. Evaluating a companyโ€™s performance by its economic, social, and environmental impact.

4. Software system that integrates all of a companyโ€™s functions, departments, and data into a single system.

5. A system in which a company produces products just when they are needed to satisfy needs. Suppliers deliver materials when they are needed to begin production, and finished units are completed at the right time for delivery to customers.

a. ERP b. JIT c. E-commerce d. TQM e. Triple bottom line

Preparing an income statement and calculating unit cost for a service company

The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:

Salaries and wages \( 10,000

Windshield repair materials 4,100

Depreciation on truck 500

Depreciation on building and equipment 900

Supplies used 450

Utilities 4,550

The Glass Doctors earned \)25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.

Requirements

1. Prepare an income statement for the month of July.

2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.

3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?

Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company

Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and income statement of Charlie Manufacturing Company. Fill in the blanks with the missing words, and replace the Xs with the correct amounts.

ing Direct Ending Direct Direct Manufacturing Overhead Total Costs Total Costs Ending Direct Materials Beginning Direct Materials Purchases of Direct Materials \( 26,000 \) X \( X X X (29,000) 177,000 50,000 \) X 51,000 81,000 (26,000) C

Net Sales Revenue Cost of Goods Sold Total Income Cost of Goods Sold: Gross Profit Expenses: Selling Expenses Administrative Expenses Cost of Goods Ending Beginning \( X 232,000 268,000 X 150,000 90,000 \) 118,000 X X X $ X CHARLIE MANUFACTURING COMPANY June 30

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

h. Cost to purchase wood pulp.

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