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Chapter 16: Q17RQ (page 885)

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

Making ethical decisions

Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale鈥檚 duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450.

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For each of the following, indicate whether the statement relates to managerial accounting (MA) or financial accounting (FA):

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Computing cost of goods sold and operating income, merchandising company

Consider the following partially completed income statements for merchandising companies and compute the missing amounts:

Smith, Inc. Allen, Inc.

Net Sales Revenue \( 101,000 \) (d )

Cost of Goods Sold:

Beginning Merchandise Inventory (a) 29,000

Purchases and Freight In 50,000 (e)

Cost of Goods Available for Sale (b) 89,000

Ending Merchandise Inventory (2,200) (2,200)

Cost of Goods Sold 61,000 (f)

Gross Profit 40,000 114,000

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Computing cost of goods sold, manufacturing company

Use the following information to calculate the cost of goods sold for The Ellis Company for the month of June:

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Beginning Balance $ 30,000

Ending Balance 10,000

Cost of Goods Manufactured 165,000
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