Cost of Goods Sold Problems and Solutions
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Problem # 1:
These data relate to Zakar Co.’s July 2017 operations:
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
>> Practice Cost of Goods Sold MCQs for thorough understanding of Cost of Goods Sold Problems and Solutions.
Problem # 2:
Following are data Extracted from Ahmadullah Pvt. Ltd. at the end of December 31st, 2017.
During the year 25,000 units were completed.
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.
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
>> See Cost of Goods Sold Chapter.
Hello Sir, I am not clear with the net purchase in Question 1 as there are no workings on how to get it. I need to know how to get the net purchase. Your reply is highly appreciated.
When you take the purchase discount or any purchased return then you have to less it from the actual purchase then net purchase will come but in this question purchase return and discount is not given direct net purachese given
Accounting
On 1-1-1993 ABC Furniture Ltd. Plans to produce
Complete 10 units that were in process on 31-12-1992
Produce 106 other tables in addition to the above 10 table during 4th year of operations. Company estimates that 1 foot of raw material (wood as direct material) is sufficient for producing 1 table. Company has wood of Rs. 550 and work in process of Rs. 200 as on 31-12-1992. On 10-1-1993, company purchased 120 feet of wood @ Rs. 10 / foot. Throughout the year production remained as under
10 initially incomplete units were completed in 1993 by requiring Rs. 50 of material,
Rs. 100 of labor and Rs. 50 of FOH.
100 units that were started in 1993 as fresh units were also completed and sold @Rs. 50 each , by requiring material of Rs. 1000, labor of Rs. 2000 and FOH of Rs. 1000
6 units started in 1993 remained still 50% incomplete till the end of year 1993. Cost on such inventory incurred as material = Rs. 30, Labor of Rs. 60 and FOH of Rs. 30
Company paid Rs. 200 as selling, admin and general expenses for this year
Required: (1) Prepare Cost of Goods Sold and Income Statement
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Problem 3
21340 – (72,000 *5%)-(72,000 *1%)-(72,000 *3%) = 21,340 – 3,750 – 750 – 2,250
72000*5% = 3750 ?????
72000*3%= 2250????
72000*1% must be 720
Net profit calculation is not clear
In Problem 1
I am not clear calculation of net purchase Amount 48400/-
In problem no 1 net purchase calculated not clear plz guide me
In question no 3:
72000*5% = 3600
72000*3%= 2160
72000*1% must be 720
Net profit calculation is not true