# Iv calculation of cost of goods sold for a

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Chapter 8 / Exercise 9
Marketing 2018
Ferrell/Pride
Expert Verified
Reflects breakage, theft, input errors, obsolescence that occurred during the year.iv. Calculation of Cost of Goods Sold for a merchandising firm1.Start with the beginning inventory and add to it all of the companies’ inventoriable product costs for the period: the cost of the merchandise purchased from manufacturers or distributors, freight-in, and any import duties. The resulting total reflects the cost of all goods that were available for sale during a period. Then subtract the cost of the products still in ending inventory to arrive at the Cost of Goods Sold
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Chapter 8 / Exercise 9
Marketing 2018
Ferrell/Pride
Expert Verified
2.Manufacturing companiesi. The income statement for a manufacturer is essentially identical to that of a merchandising company, the only difference is that the company is selling product that it has made, rather than merchandise that it has purchased.1.Result: the calculation of Cost of Goods Sold is different.2.Calculating cost of goods manufactured and cost of goods sold.1.In order to calculate COGS, a manufacturer must first figure out the amount of direct materials used and the cost of goods manufactured.2.Cost of Goods Manufacturedrepresents the cost of those goods that were completed and moved to Finished Goods Inventory during the period.3.Step 1: Calculate the cost of the direct materials used during the yeari. Start with the beginning balance in the Raw Materials Inventory and add to it all of the direct materials purchased during the year, including any freight-in and import duties. This tells us the amount of materials that were available for use during the year. Finally, subtract out the ending balance of Raw Materials, to find the cost of the direct materials used.1.Step 2: Calculate the cost of goods manufacturedi. Start with the beginning balance in work in process and then add to it all three manufacturing costs that were incurred during the year (DM used, DL, and MOH). Then subtract out the goods still being worked on at year end, to find the COGM.1.Step 3: Calculate the cost of goods soldi. Start with the beginning balance of Finished Goods Inventory and add to it the product that was manufactured during the year (CGM) to arrive at the total goods available for sale. Then subtract whatwas left in Finished Goods Inventory to get the COGS.1.By analyzing what occurred in each other the three inventory accounts, we are able to calculate theCOGS shown on the company’s Income Statement.2.Step 1 and 2 are sometimes combined into one schedule called the Schedule of Cost of Goods Manufactured.3.Sometimes all three steps are combined into a Schedule of Cost of Goods Sold.4.Comparing balance sheetsi. The only difference in the three types of companies’ balance sheets relates to how inventory is shown in the current asset section1.Service companies show no inventory2.Merchandising companies show “inventory” or “merchandise inventory”3.Manufacturing companies show Raw Materials, Work in Process, and Finished Goods Inventory