Cost of Goods
Cost of goods sold or COGS is the accumulated total of all the cost used to produce products or services, which have been sold or completed (Accounting Tools). On an income statement the cost of goods sold is subtracted from the revenues to obtain a company’s gross margin. The formula used to calculate the cost of goods sold in simple form is: Beginning inventory plus purchases less ending inventory equals cost of goods sold. ...view middle of the document...
In this method, inventory is counted at the end of every period and deducted from beginning inventory and purchases. 2) Average method is based on the average cost of items available for sale during a period. 3) Perpetual method is the most accurate and is widely used. With this method inventory is kept count at all times. 4) FIFO or first-in, first-out, use the cost of beginning inventory or oldest inventory to base calculations on. 5) LIFO or last-in, first-out bases the calculation of cost of the item on the last item purchased. This method is often used to cut tax cost assuming the last item bought was more costly. Many items factor into figuring the cost of an item including, materials, direct labor, overhead, freight, cost of goods from a manufacturer, and even cost of services or billable hours. Freight can be FOB shipping point or destination point. If FOB shipping point of sale is when the item leaves the manufacturer if Fob destination the point of sale is upon arrival to the purchaser.
* Kimmel, P.D., Weygandt, J.J., & Kieso, D.D. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons