Cost of goods sold

Inventory costs of goods that a business has put on the market during a particular period are known as Cost of goods sold (COGS). Costs associated with goods are calculated using several methods like specific identification, First-in First-out (FIFO), Last-in first-out (LIFO) or average cost. Costs of purchase, costs of conversion and all other expenditure incurred while bringing the inventories to the present location will be included in the cost. Cost of goods includes material, labor and overhead. The costs of goods that are not sold are deferred as costs of inventory. In all businesses the goods that they have bought or produced will be sold. As a part of inventory of goods, the costs associated with these goods are capitalized. To determine the selling cost of goods produced it is very important to keep a track of goods purchased, cost of production and other expenses like labor, supplies, supervision, quality control, use of overheads etc…

Cost of goods for resale

The impact of inventories on every business is very important. As per accounting and income tax rules it is very important to keep a track of inventories of goods. Purchase price and other acquisition prices will be included in the cost of goods for resale.  There are chances that this cost reflects discounts. Attributes such as freight paid to acquire the goods, custom duties, sales tax, use tax and fees paid for acquisition also will be included in the cost of goods for resale. Cost of selling and packing are considered as operating expenses. Value Added Tax is not considered in cost of goods sold if it is used as an input credit.

Cost of goods made by business

All costs incurred in production will be estimated to determine the cost of goods produced. The cost of goods include key components like parts, raw materials, supplies used, labor, payroll taxes and overhead of the business allocable to production. Direct labor and indirect labor are included in labor costs. Standard cost is the basis to allocate materials and labor. To determine overhead cost, it is necessary to assume the costs associated with production activities and other activities. Sometimes, cost of goods sold can be identified with the item. In First-In First-Out (FIFO) method, it is assumed that the items purchased first are sold first. In average cost method, the average cost of a unit is used. Last In First Out (LIFO) is the reverse of FIFO.

Questions:

• Define Costs of goods sold?
• Explain about the cost of goods for resale?