Question

Question:Calculating cost of goods sold for merchandising and manufacturing companies

Below are data for two companies:

Company A Company B

Beginning balances:

Merchandise Inventory \( 10,600

Finished Goods Inventory \) 15,000

Ending balances:

Merchandise Inventory 13,100

Finished Goods Inventory 11,700

Net Purchases 154,500

Cost of Goods Manufactured 214,500

Requirements

1. Define the three business types: service, merchandising, and manufacturing.

2. Based on the data given for the two companies, determine the business type of each one.

3. Calculate the cost of goods sold for each company

Short answer

The service company sells services, the merchandising company sell purchased from others and the manufacturing company sells the goods produced by themselves. Company A is a merchandising company and Company B is a manufacturing company. The COGS of Company A is $152,000 and company B is $217,800.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of a service company, merchandising company, and manufacturing company

Service companies are defined as the company which sell their time, skills, and knowledge to the customers and clients of the company

A merchandising company is defined as acompany that resells products they buy from the suppliers. Merchandisers keep the inventory of products.

A manufacturing company is a company that uses labor, equipment, supplies, and facilities to convert raw materials into finished goods and sell them.

Determining the business type

Company A is a merchandising company as its particulars include the data for merchandising inventory

Company B is a manufacturing company as its particulars include the data for ending and beginning balance of finished goods inventory and cost of goods manufactured.

Computation of cost goods sold

$$\begin{gathered} \mathbf{CostofgoodssoldofCompanyA}\mathbf{=}\mathbf{BeginningmerchandiseInventory}\mathbf{+}\mathbf{Purchases}\mathbf{-}\mathbf{EndingMerchandisingInventory} \\ \mathbf{=}\mathbf{10}\mathbf{,}\mathbf{600}\mathbf{+}\mathbf{154}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{13}\mathbf{,}\mathbf{100} \\ \mathbf{=}\mathbf{\$}\mathbf{152}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{CostofgoodssoldofCompanyB}\mathbf{=}\mathbf{BeginningFinishedGoodsInventory}\mathbf{+}\mathbf{COGM}\mathbf{-}\mathbf{EndingFinishedGoodsInventory} \\ \mathbf{=}\mathbf{15}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{214}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{11}\mathbf{,}\mathbf{700} \\ \mathbf{=}\mathbf{\$}\mathbf{217}\mathbf{,}\mathbf{800} \end{gathered}$$