Cost of Goods Sold (COGS) refers to the cost to a business of making product or service. COGS differ from one industry to another. COGS appear on the
income statement and can be deducted from revenue to calculate a company's gross margin. The cost of goods sold includes net direct inventory cost and
labour expense, factory overhead, office and administration overhead but does not includes indirect cost related to selling and distribution overhead.

For manufacturing industry, COGS refers to buying of raw material & expense for manufacturing finished goods. For retailers, it is the cost of
obtaining or buying the products sold to customer. If the company is in a service industry, COGS is the cost of the service it offers.

In simplest method, COGS denotes value of inventory at the begging of specified period plus purchase of inventory less inventory at the ending of specified
period. For accounting theory, this for is widely used. Different technique used for First in First out (FIFO) and Last in First out (LIFO) inventory
control technique.

Therefore COGS = Opening Inventory + Purchase value of inventory – Closing Inventory.

Under cost accounting technique, COGS calculate following process


Particular

Amount

Amount

Operating stock of raw material
Add
Purchase of raw material
Carriage charge at the time of raw material purchase
Fright charge on raw material
Less
Closing stock of raw material
Material return to the supplier
Abnormal loss on raw material



RAW MATERIAL CONSUMED



Add
Direct wages
Direct expense
Chargeable expenses



PRIME COST



FACTORY OVERHEAD
Factory Overhead
Indirect wages
Indirect expense or material
Oil
Waste
Power, fuel, coal, gas, electricity etc
Factory rent and insurance
Works stationery
Depreciation on Furniture, factory building
Supervisor or works manager salary
Factory canteen & recreation expense
Worker training and recruitment
Expense of purchase department
Cotton, grease
Worker compensation
Normal loss of material
Research expense
Normal idle time cost (exclude abnormal cost)
Security
Store supervisor expense
Expense of service department
Some other expenses related to factory
Less sale of scrap
Add Opening working progress
Less closing working progress



WORKS COST / FACTORY COST



OFFICE AND ADMINISTRATION OVERHEAD
Office rent
Depreciation on office furniture
Manager salary
Office staff salary
Office printing and stationery
Office rent and taxes
Office building insurance
Office lighting and heating
Advertisement
Telephone & postage expenses
Director fees
Depreciation related to office furniture, building, equipment
Sundry office expense
Salaries for accounting office
Repair of office assets
Audit fees and legal expenses
Subscription of trade association
Bank expenses
Subscription to newspaper, journal
Salary of general manager
Other expenses related to office



COST OF PRODUCTION



Add opening finish goods
Less closing finish goods



COST OF GOOD SOLD / COST PRODUCTION OF GOOD SOLD









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Pijush Roy, Founder & Author of "Share Your Knowledge", is a young freelance blogger, a reader, a painter, .....read more


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