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Purchases, Inventory and Cost of Goods Sold (COGS)

Purchases, inventory and cost of goods sold are intimately related in accounting. At the end of the period, manufacturing companies and merchandise retailers present these three items together on the income statement. Cost of goods avaialble for sale are calculated as the company's beginning inventory plus it's purchases. Cost of goods sold are calculated as the cost of goods avalailable for sale less ending inventory. Gross profit is calculated as sales less cost of goods sold. 

Operating expenses, suches as selling, general and administrative (SG&A) are then subtracted from gross profit to calculate operating income. Service companies may use a similar layout for their income statement, recording costs of services and calculating a gross profit. This allows users of the financial statement to get a quick understanding of the inventontory consumed in the ordinary course of business and to compare it to the company's overhead. 

When a periodic inventory system is used, the cost of goods sold depends significantly on the cost flow method chosen for valuing inventory and cost of goods sold. Because inventory amounts may be susceptible to maniupulation, the accounting professions is acutely aware of the need to ensure true and fair accounting methods and satisfactory internal controls are used for inventory. 

Categories within Purchases, Inventory and Cost of Goods Sold (COGS)

Cost of Goods Sold

Postings: 81

The cost of goods sold is the cost of inventory consumed or sold over the ordinary course of business during the period.


Postings: 1

Purchases are equal to the price of purchased inventory multiplied by the number of units ordered. The purchases account informs the cost of goods available for sale.

Ending Inventory, COGS and Net Income Under the FIFO Method

Purchases: July 15 5500 units $9.00 per unit November 12 Spark Company's inventory records show the following data Inventory, January 1, 2013 6,000 units $10.00 3500 units $8.00 per unit A physical inventory on December 31 2013 shows 4,000 units on hand. Spark sells the units for $18 each. The company has an effec

Savannah Textiles Company: WIP Inventory

How do I calculate Cost of the September 30 Work-in-process inventory in the Weaving department? I am providing all of the information I have. Savannah Textiles Company manufactures a variety of natural fabrics for the clothing industry. The following data pertain to the Weaving Department for the month of September.

Assessing Budgets

7-28 Ronoco Products, a wholesaler of fishing equipment, budgeted the following sales for the indicated months: June 20X8 July 20X8 August 20X8 Sales on account $1,820,000 $1,960,000 $2,100,000 Cash sales 280,000 240,000 260,000 Total sales $2,100,000 $2,200,000 $2,360,000 All merchandise is marked up to sell at its in

Peabody Limited. Statement of Cost of Goods Manufactured, COGS, Fin Stmt

Peabody Limited. incurred the following costs during March: Raw materials purchased $46,800 Direct labor (9,200 hours) 156,400 Manufacturing overhead (actual) 83,000 Selling expenses 47,400 Administrative expenses 32,600 Interest expense 14,800 Manufacturing overhead is applied on the basis of $8.50 per direct labor h

PharmCo's Overstated Inventories

Identify the operational and behavioral issues in the following case Abstract A new internal auditor discovers that her company is falsifying inventories—and selling expired medications. When she refuses to ignore her findings, she receives a reprimand. As the family breadwinner, how can she uphold her professional ethics

Creative Products Inc: costs, COGS, net income

Creative Products Inc. incurred the following costs: Administrative Costs = $2,000 Advertising Costs = $1,000 Direct Material Used = $8,000 Direct Labor = $20,000 Factory equipment deprectiation= $1,000 Factory Rent

Cost Formula Using the High Low Method

The controller of Chittenango Chain Company believes that the identification of the variable and fixed components of the firm's costs will enable the firm to make better planning and control decisions. Among the costs the controller is concerned about is the behavior of indirect-materials cost. She believes there is a correlatio

Inventory, turnover ratio and gross profit ratio

Using the following information, calculate inventory turnover ratio, the average days in inventory and the gross profit ratio for Howard Company for the year ended December 31, 2011 (Rounded to two decimal places.) Explain each concept and show the relevant formula along with the solution. Sales

Park Company Exercise (Four Inventory Methods)

Park Company reported the following March purchases and sales data for its only product: *** See Attachment *** Park uses a perpetual inventory system. For specific identification, ending inventory consists of 240 units, where 100 are from the March 30 purchase, 80 are from the March 20 purchase, and 60 are fr

Inventory-As order size increases, total?

As order size increases, total: inventory costs will increase, reach a maximum and then quickly decrease. inventory cost will decrease, reach a minimum and then increase. ordering costs will initially increase while total carrying cost will continue to decrease. carrying cost decreases while the

Inventory-Rose Arena

Rose Arena is the production manager for a manufacturing firm that produces buggy whips and other items. The annual demand for a particular buggy whip is 1,600 units. The holding cost is $2 per unit per year. The cost of setting up the production line is $25. There are 200 working days per year. Rose decided to produce 200 units

Intermediate Financial Accounting - Inventories

1- Many companies use the lower-of-cost-or-market method to value inventory. They compare the current value of their inventory with its historical cost and adjust the value, if necessary, to ensure the inventory is booked at the lower of the two values. Why do you think inventories are valued using the lower-of-cost-or-market me

Preparation of a Schedule of COGM and COGS and more....

Please refer to the spreadsheet attached to the question: 1. If Eccles produces 10,000 units what is the unit cost and total cost for direct material and factory rent? 2. Assume that Eccles doubles their production, how will that effect the 2 cost item above?

Cost Flow Methods

Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory. Instructions: (a) Compute the cost of the ending inventory and the cost of goods sold under: (1) FIFO, (2) LIFO, and (3) a

Operations Management: Inventory use and methods in a 214 hour daycare unit

Use a 24 hour daycare center profile and operating information. Identify how a 24 hour daycare uses inventory. What are three different inventories of products or supplies that the 24 hour daycare maintains? What do you think is the total amount of inventory on average that is maintained in comparison to the annual income

You have brought up an important aspect of the cost of sales

1 You have brought up an important aspect of the cost of sales, inventory. Inventory is the purchased items that are still in house when you take your inventory. Most F&B operations take their inventory once a week. When counting inventory it is important that you are consistent in the way you do it. This would include the items

Inventory Turnover for Donovan Enterprises

Donovan Enterprises us trying to determine the effect of its inventory turnover ratio and DSO on its cash flow cycle. Donovan's sales last year (all on credit) were $185,000, and it earned a profit of 7.5%. It turned over its inventory 8 times during the year, and its DSO was 43. Donovan's COGS was $123,500. The firm had fixed a

Identify the assertions for audit of client's inventory

5-29 (Assertions) In planning the audit of a client's inventory, an auditor identified the following issues that need audit attention. 1. Inventories are properly stated at the lower of cost or market. 2. Inventories included in the balance sheet are present in the warehouse on the balance sheet date. 3. Inventory quantitie

Transaction cycle chart

I need help with completing a transaction cycle chart for the accounting for inventory portion only. I completed the other three sections. Attached is the scenario and a final blank chart template for completion of accounting for inventory.

ABC Analysis Tutorial

Please help with the given problem: How does ABC Analysis divide the total inventory using the rupee volume? Explain.

Cost Valuation Systems: Inventory and Costs of Goods Sold

Please help to analyze the questions. In addition I need the formula to for the FIFO method and LIFO along with the cost of good sold. See the attached file. 1. The Beautifully Fabulous Beauty Salon (BFBS) purchases its inventory from a manufacturer in California. BFBS has a high selling product called "Beauty Gloss". D

Schedule of Cost of Goods Manufactured COGS income statement

Please review my 1st attempt of preparing a schedule of cost of good based upon provided information. I am not sure of if my selections for the various costings are correct, .i.e. Advertising cost, Salaries and depreciation. Are these types of costs considered indirect manufacturing overhead? Please review cost selection

Kreiter Instrument: Change in inventory accounting method to average cost

See attached file for clarity. The management of Kreiter Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Kreiter changed its method of pricing inventory from last-in, first-out (LIFO) to average cost in 2007. Given below is t

Key Reasons Organizations Hold Inventories

Identify key reasons that organizations may need to hold inventories. What factors may lead an organization to change the level of inventories that it holds? How could such a decision affect the other elements of working capital?

Specific Identification inventory method

Specific Identification inventory method Date Activities Units Acquired at Cost Units sold at Retail Jan. 1 Beg. Inventory 60 units @ $10=$600 Jan. 10 Sales 61 units @ $40 Mar. 14 Purchase 173 units