Cost of Goods Sold Problems and Solutions

 

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Problem # 1:

These data relate to Zakar Co.’s July 2017 operations:

Cost of Goods Sold Statement

 

Factory overhead is applied at the rate of 80% of direct labor cost.

 

Requirement:

Cost of materials purchased, Cost of goods manufactured, Cost of goods sold and Conversion Cost.

 

Solution: 

Zakar Company

Cost of Goods Sold Statement

For the Ended July, 2017

Opening Inventory 7,000
Net Purchases (Calculated) 48,400
Direct Expenses 400
Material Available for use 55,800
Closing Inventory (9,000)
Direct Material used 46,800
Direct Labor (80% of direct labor cost) 8,000
Prime Cost 54,800
Factory Overhead Cost 6,400
Total Factory Cost 61,200
Opening Work in Process 7,500
Cost of Goods Available for Manufactured 68,700
Closing Work in Process (3,500)
Cost of Goods Manufactured 65,200
Opening Finished Goods 10,000
Cost of Goods Available for Sold 75,200
Closing Finished Goods (12,000)
Cost of Goods Sold Rs. 63,200

 

Conversion Cost = Direct Labor + FOH = 8,000 + 6,400 = Rs. 14,400

 

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Problem # 2:

Following are data Extracted from Ahmadullah Pvt. Ltd. at the end of December 31st, 2017.

Cost of Goods Sold Statement

During the year 25,000 units were completed.

Cost of Goods Sold Statement

 

Requirements:

(1) Total Factory Cost                                        (2) Cost of Goods Manufactured

(3) Cost of Goods Sold                                      (4) Gross Profit and Net Profit                          

(5) Per Unit Cost of Goods Manufactured

 

Solution: 

Ahmadullah Pvt. Ltd.

Cost of Goods Sold Statement

For the Ended December, 2017

Opening Inventory 176,000
Net Purchases 2,400,000
Transportation inward 32,000
Material Available for use 2,608,000
Closing Inventory (196,000)
Direct Material used 2,412,000
Direct Labor 3,204,000
Prime Cost 5,616,000
Factory Overhead Cost 1,885,600
Total Factory Cost   7,501,600
Opening Work in Process 129,800
Cost of Goods to be Manufactured 7,631,400
Closing Work in Process (136,800)
Cost of Goods Manufactured   7,494,600
Opening Finished Goods 620,000
Cost of Goods to be Sold 8,114,600
Closing Finished Goods (467,400)
Cost of Goods Sold     Rs.7,647,200

Gross Profit    =   Net Sales – CGS     = (14,000,500 – 25,200) – 7,647,200         =      Rs. 6,328,100

Net Profit        =   Gross Profit – Indirect Expenses   6,328,100 – (200,000 + 65,000+155,000)

=      Rs. 5,908,100

Per unit Cost of goods manufactured =                   7,494,600 / 25,000         =     Rs. 300 Per Unit

 

>> Practice using Cost of Goods Sold Format for better understanding.



 

Problem # 3:

Account Department of the Aqib Khan Co. provides the following  data at end of June 2017, you are required to prepare Cost of Goods Manufactured; Cost of Goods Sold; find out Gross Profit / Loss & Net profit / Loss and Per unit Manufacturing Cost at the Year ended May 30th, 2009, assuming that Net Sales of Rs. 72,000, Marketing Expense 5%, Advertising Expense 1 % and Other Expense 3% of Net Sales; Net Purchases Rs. 36,000 and Direct Expenses are 1 % of Net Purchases; FOH 2/3 of Direct Labor and Direct Labor cost is Rs. 15,000. Units are produced during the period was 5,000.

Cost of Goods Sold Statement

 

Solution: 

Aqib Khan Co.

Cost of Goods Sold Statement

For the Ended June, 2017

Beginning Inventory 8,000
Net Purchases 36,000
Direct Expense (36,000*1%) 360
Material available for used 44,360
Ending Inventory 8,500
Material Used 35,860
Direct Labor 15,000
Prime Cost 50,860
FOH (2/3 of 15,000) 10,000
Total Factory Cost 60,860
Work in Process beginning 8,000
Cost of goods to be manufactured 68,860
Work in Process Ending (15,000)
Cost of goods manufactured 53,860
Finished Goods Beginning 7,000
Cost of goods available for sales 60,860
Finished Goods Ending (10,200)
Cost of Goods Sold Rs. 50,660

 

  Gross Profit = Net Sales – CGS = 72,000 – 50,660                          =            Rs. 21,340

  Net Profit =Gross Profit – All indirect expenses of office    =    21,340 – (72,000 *5%)-(72,000 *1%)-(72,000 *3%) = 21,340 – 3,750 – 750 – 2,250                               =           Rs. 14,590

  Per Unit Cost = Cost of goods manufactured / No. of Units Produced = 53,860 / 5,000 = Rs. 11 per Unit

 

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