Select Page

Cost of Goods Sold Examples

Previous Lesson:

Next Lesson: MCQs

Example # 1:

Muhammad Sohail Industries submits the following information on June 30th, 2019:

DescriptionsRs.
Sales for the year250,000
Raw material inventory as on July 1st, 201813,000
Finished goods inventory as on July 1st, 201858,000
Purchases102,000
Purchases return2,000
Direct labor cost39,000
Power, heat & light2,000
Indirect material consumed4,000
Depreciation on plant3,500
Depreciation on machinery6,000
Tools expenses3,000
Indirect labor cost1,000
Fire insurance250
Miscellaneous manufacturing costs500
W.I.P inventory as on July 1st, 201812,000
W.I.P inventory as on June 30th, 201916,000
Raw material inventory as on June 30th, 201919,000
Finished goods inventory as on June 30th, 201956,500

Requirement: Prepare cost of goods sold for the year ended June 30th, 2019.

Solution:

>>> Read Cost of Goods Sold Problems and Solutions

Example # 2:

During the month of August 2019, the Hazrat Bilal Corporation used Rs. 50,000 of raw material. The mixing department used 12,000 labor hours at a cost of Rs. 30,000 and finishing department used 2,000 labor hours at cost of Rs. 9.00 per hours. Factory overhead is applied at the rate of Rs. 3.30 per hours in the mixing department and Rs. 4 per hours in the finishing department.

DescriptionRs.
Inventories on August 1st, 2019:
Raw materials16,000
Material-in-process6,000
Labor-in-process6,500
F.O.H-in-process7,200
Finished goods12,400
Inventories on August 31st, 2019:
Raw materials18,000
Material-in-process7,000
Labor-in-process5,000
F.O.H-in-process6,000
Finished goods14,000

The Corporation produced 25,000 units of product during the month.

Requirement:

• A schedule showing the cost of goods manufactured and the cost of goods sold.
• Calculate per unit cost of materials, labor and overhead for the August 2019 production.

Solution:

Per Unit Cost = Cost of Goods Manufactured / Units Manufactured

Per Unit Cost of Material = 49,000 / 25,000 = 1.96

Per Unit Cost of Labor = 49,500 / 25,000 = 1.98

Per Unit Cost of FOH = 48,800 / 25,000 = 1.952

Total Per Unit Cost = 1.96 + 1.98 + 1.952 =   5.892

>>> Read Cost of Goods Sold

Example # 3:

The cost department of Muhammad Talha Company on December 31st, 2019:

DescriptionRs.
Raw material January, 134,000
Finished goods January 1 48,600
W.I.P January 181,500
Factory equipment depreciation21,350
Interest earned6,300
Raw material purchased364,000
Direct labor cost162,500
Indirect labor cost80,000
Freight in8,600
Purchases discount5,200
Raw material December, 3149,000
Finished goods December, 31???
W.I.P December, 3142,350

Other information:

• Finished goods inventory Jan. 1 = 300 units
• Finished goods inventory Dec. 31 = 420 units
• Sold during year = 3880 units at Rs. 220 per unit

Required:

• Cost of goods sold
• The unit cost of Finished Goods Inventory as on December 31st, 2019
• The total value of Finished Goods Inventory as on December 31st, 2019

Solution: (2)

Per Unit Cost = Cost of Goods Manufactured / Units Manufactured

Per Unit Cost = 703,300 / 4,000 (see working below)

Per Unit Cost = Rs. 175.825

Unit manufacturing working:

Total number of units sold = 3880 units

Add Finished goods inventory Dec. 31 = 420 units

Less Finished goods inventory Jan. 1 = 300 units

Units manufactured or Production Budget = 4,000 Units

Solution: (3)

Finished goods inventory cost = Closing finished goods units * Per unit cost

Finished goods inventory cost = 430 * 175.825

Finished goods inventory cost = Rs. 73,846.50

>> Practice Cost of Goods Sold MCQs

References

Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.

Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.

Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.

1 Comment

1. Good examples for CGS. Thank you so much sir…