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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

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

e. Cost of chemicals to treat the paper.

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

f. Cost of TV ads.

Question:Calculating income and cost per unit for a merchandising company

Conway Brush Company sells standard hair brushes. The following information summarizes Conway’s operating activities for 2018:

Selling and Administrative Expenses $ 47,058

Purchases 85,800

Net Sales Revenue 151,800

Merchandise Inventory, January 1, 2018 7,920

Merchandise Inventory, December 31, 2018 11,748

Requirements

1. Calculate the operating income for 2018.

2. Conway sold 6,600 brushes in 2018. Compute the unit cost for one brush.

Calculating income and cost per service for a service company

Buddy Grooming provides grooming services for pets. In April, the company earned \(16,300 in revenues and incurred the following operating costs to groom 660 dogs:

Wages Expense \) 4,061

Grooming Supplies Expense 1,675

Building Rent Expense 900

Utilities Expense 305

Depreciation Expense—Equipment 55

Requirements 1. What is Buddy’s operating income for April?

Determining the flow of costs through a manufacturer’s inventory accounts

True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000.

Requirements Analyze the inventory accounts to determine:

1. Cost of direct materials purchased during the year.

2. Cost of goods manufactured for the year.

3. Cost of goods sold for the year.
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