Loading....
Coupon Accepted Successfully!

 

Cost of Goods Sold (COGS)

Cost of Goods Sold refers to the aggregate of purchase, direct wages and direct expenses incurred in relation to the goods sold. Sales always include an element of gross profit. Therefore, in order to find the cost of goods sold, the gross profit has to be eliminated from sales.

 

Description: 25711.jpg 


The ratio of gross profit to sales is very significant. It is arrived as:
(Gross Profit/Sales) x 100


Illustration 1 [Preparation of Trading Account]

 

Prepare Trading Account for the year ending 31-3-2014




 

 

Illustration 2 (Calculation of COGS)
 

Calculate Cost of Goods Sold for the months of January and February.
 

COGS of January:

 

Opening stock + Purchases + Direct Expenses - Closing Stock

 

= ₹ 80,000 + ₹ 3,40,000 + ₹ 60,000 - ₹ 1,20,000

 

= ₹ 3,60,000
 

COGS of February

 

Opening Stock + Purchases + Direct Expenses - Closing Stock

 

= ₹ 1,20,000 + ₹ 2,80,000 + ₹ 80,000 - ₹ 1,40,000

 

= ₹ 3,40,000

 

Note: Opening stock of the next period will be the closing stock for the current period.





Test Your Skills Now!
Take a Quiz now
Reviewer Name