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