Known: purchase = 100,000
COGS = 104,000
Asked: Initial unit = r?
End unit = p?
Answer: Using this formula: COGS = Initial inventory + purchase - ending inventory
Simply adjust to the formula above
COGS = Initial inventory + purchase - ending inventory
104,000 = r + 100,000 - p
104,000 = 10,000 + 100,000 - 6,000
So, for the initial unit = 10,000 and for the final unit = 6,000. The answer is A.
Trading companies are companies whose main business is buying goods from suppliers and selling them back to consumers without changing the shape of the goods. For example, we usually find grocery stores and supermarkets. Both types of businesses buy daily necessities from suppliers and resell them to consumers.
Determine the Cost Components for Sales of Trading Companies
Some components determine the cost of goods sold by a trading company. All of the following components affect the cost of goods sold. Some of them are:
1. Initial inventory of merchandise
The initial inventory of merchandise is the inventory of goods available at the beginning of the current period or financial year. The initial inventory balance of merchandise can be seen in the current account balance or the company's initial balance sheet or the previous year's balance sheet.
2. Final inventory of merchandise
Merchandise ending inventory is inventory available at the end of the current period or end of the financial year. This inventory balance is usually known in the company adjustment data at the end of the period.
3. Net purchases
Net purchases are all purchases of goods made by the company, both purchases of goods in cash or credit, plus the cost of transportation purchases minus the purchase discounts and returns on purchases that occur.
The cost of goods sold or COGS is a term used in financial and tax accounting to describe the direct costs arising from goods produced and sold in business activities. This includes the cost of raw materials, direct labor, and overhead costs and does not include period (operating) costs such as sales, advertising or research and development.
For trading companies, the method of calculating the cost of goods sold is:
Cost of goods sold (COGS) = initial inventory + net purchases - ending inventory
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Grade: College
Subject: Business
keywords: A trading company, The cost of goods sold or COGS
