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 Inventory7,000
Net Purchases (Calculated)48,400
Direct Expenses400
Material Available for use55,800
Closing Inventory(9,000)
Direct Material used46,800
Direct Labor (80% of direct labor cost)8,000
Prime Cost54,800
Factory Overhead Cost6,400
Total Factory Cost61,200
Opening Work in Process7,500
Cost of Goods Available for Manufactured68,700
Closing Work in Process(3,500)
Cost of Goods Manufactured65,200
Opening Finished Goods10,000
Cost of Goods Available for Sold75,200
Closing Finished Goods(12,000)
Cost of Goods SoldRs. 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.

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 Inventory176,000
Net Purchases2,400,000
Transportation inward32,000
Material Available for use2,608,000
Closing Inventory(196,000)
Direct Material used2,412,000
Direct Labor3,204,000
Prime Cost5,616,000
Factory Overhead Cost1,885,600
Total Factory Cost 7,501,600
Opening Work in Process129,800
Cost of Goods to be Manufactured7,631,400
Closing Work in Process(136,800)
Cost of Goods Manufactured 7,494,600
Opening Finished Goods620,000
Cost of Goods to be Sold8,114,600
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 Inventory8,000
Net Purchases36,000
Direct Expense (36,000*1%)360
Material available for used44,360
Ending Inventory8,500
Material Used35,860
Direct Labor15,000
Prime Cost50,860
FOH (2/3 of 15,000)10,000
Total Factory Cost60,860
Work in Process beginning8,000
Cost of goods to be manufactured68,860
Work in Process Ending(15,000)
Cost of goods manufactured53,860
Finished Goods Beginning7,000
Cost of goods available for sales60,860
Finished Goods Ending(10,200)
Cost of Goods SoldRs. 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.

3 Comments

  1. Ahmed

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    Reply
  2. khinsweswekyaw

    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

    Reply
  3. khinsweswekyaw

    In Problem 1
    I am not clear calculation of net purchase Amount 48400/-

    Reply

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