2. Financial Accounting 1 Lecture – 16 Recap Stock accounts Purchases account Stock in trade Other manufacturing costs Cost of goods sold Recording of stock related transactions Stock is classified under current assets

3. Financial Accounting 2 Lecture – 16 Cost of Goods Sold Statement To this point we have studied Cost of Goods Sold as an account. But just like profit and loss account we can present Cost of Goods Sold as a Statement. Now a days while presenting the financial statements Cost of Goods Sold is presented like a statement.

4. Financial Accounting 3 Lecture – 16 Cost of Raw Material Includes Purchase price of material purchased Plus Expenses incurred to bring it the business premises.

5. Financial Accounting 4 Lecture – 16 Raw Material Opening stock + Purchases + Purchase costs - Closing Stock

6. Financial Accounting 5 Lecture – 16 Work in Process Opening stock + Raw material consumed + Labor + Other manufacturing costs - Closing stock

7. Financial Accounting 6 Lecture – 16 Finished Goods Opening stock + Cost of completed goods (transfer from work in process) - Closing stock

8. Financial Accounting 7 Lecture – 16 Cost of Goods Sold Cost sold goods transferred from finished goods account

9. Financial Accounting 8 Lecture – 16 Cost of material consumed – is the cost of material used for consumption. Over Heads – are the other costs incurred in relation of manufacturing of goods. Total factory cost – is the cost of material consumed plus labor and over heads. Cost of goods manufactured – is total factory cost plus opening stock of work in process less closing stock of work in process. Cost of goods sold – is the cost of goods manufactured plus opening stock of finished goods less closing stock of finished goods. Conversion cost – is the cost incurred to convert raw material to finished goods.

10. Financial Accounting 9 Lecture – 16 Cost of Goods Sold Statement Raw Material: O/S Raw Material + Purchases + Cost Incurred to Purchase RM - C/S Raw Material Cost of Material Consumed Conversion Cost:+ Labor + Factory Overheads Total Factory Cost Work in Process+ O/S of WIP - C/S of WIP Cost of Goods Manufactured Finished Goods+ O/S of Finished Goods - C/S of Finished Goods Cost of Good Sold Cr. Stock Dr. WIP Cr. Expense Dr. WIP Cr. WIP DR. FG Cr. COS Dr. FG

11. Financial Accounting 10 Lecture – 16 Example Using the following data calculate the Cost of Goods Sold of XYZ Co. Stock levelsO/S Rs.C/S Rs. Raw material100,00085,000 Work in process 90,00095,000 Finished goods150,000 140,000 Purchase of raw material during the period Rs. 200,000 Paid to labor Rs. 180,000 out of which Rs. 150,000 used on production. Other production costs Rs. 50,000

12. Financial Accounting 11 Lecture – 16 Example Raw Material: Opening Stock Raw Material100,000 + Purchases200,000 + Cost Incurred to Purchase RM 0 - Closing Stock Raw Material(85,000) Cost of Material Consumed215,000 Conversion Cost:+ Labor150,000 + Factory Overheads 50,000 Total Factory Cost415,000 Work in Process+ O/S of WIP 90,000 - C/S of WIP (95,000) Cost of Goods Manufactured410,000 Finished Goods+ O/S of Finished Goods150,000 - C/S of Finished Goods (140,000) Cost of Good Sold420,000

13. Financial Accounting 12 Lecture – 16 Sample Stock Card Stock Account Item 01 DateReceiptsQtyRateAmountDateIssuesQtyRateAmount 101501,500 152003,000

14. Financial Accounting 13 Lecture – 16 Valuation Methods First in First Out (FIFO) Last in First Out (LIFO) Weighted Average

15. Financial Accounting 14 Lecture – 16 Example Receipts: 01 Jan 20--,10 units @ Rs. 150 per unit 02 Jan 20--,15 units @ Rs. 200 per unit 10 Jan 20--,20 units @ Rs. 210 per unit Issues: 05 Jan 20--,05 units 06 Jan 20--,10 units 15 Jan 20--,15 units

16. Financial Accounting 15 Lecture – 16 FIFO Method of Stock Valuation DateReceiptsIssuesValue of Stock 01-01-20--10 @ Rs. 15010 x 150 = 1500 1500 02-01-20--15 @ Rs. 20010 x 150 = 1500 15 x 200 = 3000 4500 05-01-20--5 @ 150 = 750 750 5 x 150 = 750 15 x 200 = 3000 3750 06-01-20--5 @ 150 = 750 5 @ 200 = 1000 1750 0 x 150 = 0 10 x 200 = 2000 2000 10-01-20--20 @ Rs. 21010 x 200 = 2000 20 x 210 = 4200 6200 15-01-20--10 @ 200 = 2000 5 @ 210 = 1050 3050 0 x 200 = 0 15 x 210 = 3150 3150

17. Financial Accounting 16 Lecture – 16 Weighted Average Method of Stock Valuation DateReceiptsIssuesValue of StockAverage Cost 01-01-20--10x150 = 1500 15001500/10=150 02-01-20--15x200 = 30001500 + 3000 = 45004500/25=180 05-01-20-- 5x180 = 9004500 – 900 = 36003600/20=180 06-01-20--10x180 = 18003600 – 1800 = 18001800/10=180 10-01-20--20x210 = 42001800 + 4200 = 60006000/30=200 15-01-20--15x200 = 30006000 – 3000 = 30003000/15=200

18. Financial Accounting 17 Lecture – 16 Effect of Valuation Method on Profits FIFO Method Cost of Sales= 750 + 1750 + 3050= 5,550 Gross Profit= 7500 – 5550= 1,950 Weighted Average Method Cost of Sales= 900 + 1800 + 3000= 5,700 Gross Profit= 7500 – 5700= 1,300