1 Net Sale Total Sales - Sales return - sales discount (T & M)

2 Cost of goods sold

COGS of Trading business COGS of Manufacturing business

Inventory (at start) 10,000 1 Direct material used
add: Net Purchase 120,000 2 Direct labor used
Inventory available for sale 130,000 3 Factory overhead
Less: Inventory (at end) (20,000) 4 Work in Process
5 Finished goods
COGS 110,000

3 Operating expenses All expenses related to operation of business. It includes

(T & M) Office expenses (Called Administrative and General Exp) and
Sales expenses (Called Selling and marketing expenses)

4 Other Income All income which are not related to main business activities
(T & M)
 Name of Company
Cost of Goods Manufactured
For the period ended Dec 31, 1996
Particulars Rs. Rs.
1. Direct material used
Raw material (at start)
Add: Net Purchases:
Purchases 210,000
Add: Freight in 4,500
Gross Purchases 214,500
Less: Purchase return 8,000
Purchase discount 4,000 (12,000)
Net Purchases
Total raw material avaiable for use/ consumed
Less: Raw material ( at end)
Raw Material Consumed/ Used:

2. Direct Labour:
Direct labor 60,000
Add: Direct labor payable 4,000
Prime Cost

3. Factory overhead:
Machinery repair
Heat and light
Factory insurance 7,500
Less: Prepaid Insurance (6 months x 625) (3,750)
Indirect labor
Factory supplies 10,000
Less: Factory supplies on hand (3,000)
Depreciation expenses - Factory building
Depreciation expenses - Factory machinery
Total Factory Overhead
Manufacturing Cost / Factory Cost
4. Work in Process:
Add: Work in process (at start)
Total work in process
Less: Work in process (at end)
Cost of Goods Manufactured
ed
996
Rs. Rs.

56,000

202,500
258,500
(28,000)
230,500

64,000
294,500

8,000
16,500

3,750
9,000

7,000
3,000
5,000
52,250
346,750
 24,000
370,750
(20,000)
350,750
SAAD Manufacturing Co.
Income Statement

1 NET SALES:
Sales
Less: Sales return 4,600
Sales discount 5,000
NET SALES:

2 Less: COST OF GOODS SOLD:

Cost of goods manufactured
Add: Finished Goods (at start)
Total Finished goods available for sale
Less: Finished Goods (at end)
COST OF GOODS SOLD

3 Less: Operating Expenses:

Administrative Expenses:
Other Administrative expenses
Depreciation expenses - Office building

Marketing and Selling Expenses:

Amortization on patent
 508,600

(9,600)
NET SALES: 499,000

350,750
70,000
420,750
(92,000)
COST OF GOODS SOLD (328,750)
GROSS PROFIT 170,250

40,000
6,000 46,000

2,000 2,000 (48,000)

NET INCOME 122,250

 Name of Company
Cost of Goods Sold
For the period ended June 30, 2002
Particulars Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 3,420
Add: Net Purchases:
Purchases 90,563
Add: Freight in 477
Gross Purchases 91,040
Less: Purchase discount
Net Purchases 91,040
Total raw material avaiable for use/ consumed 94,460
Less: Raw material ( at end) (7,130)
Raw Material Consumed/ Used:

2. Direct Labour:
Direct Labour used
Prime Cost
3. Factory overhead:
Indirect labor 5,026
Depreciation - Factory equipment 2,135
Misc. FOH 17,908
Rent (80%) 4,000
Total Factory Overhead
Manufacturing Cost / Factory Cost
4. Work in Process:
Add: Work in process (at start)
Total work in process
Less: Work in process (at end)
Cost of Goods Manufactured
5.Finished Goods:
Add: Finised Goods (at start)
Total Finished Goods available for sale
Less: Finished Goods (at end)
 Cost of Goods Sold

30

Net Sales
Less: Cost of goods sold

Less: Operating expenses:

1 Administrative expenses:
Rent (10%)
Office salaries
Misc. admin
Total administative expenses
2 Selling & Marketing expenses:
Rent (10%)
Sales salaries
Royalties paid
Freight out
Misc. marketing expenses
Un-collectable expenses
Total Marketing expenses

Add: Other income:

Purchase discount
Interest earned

Calculation of nos. of units produced:

Nos. of units sold
Add: Finished goods (at end)
 Total finished goods available for sale
Less: Finished goods (at start)
NOS. OF UNITS PRODUCED

Calculate the unit cost / Average cost / Per unit c

Unit cost = COGM
Nos. of units produced

183,078
4,359
Calculation of Cost of Finished goods:
Cost of finished goods = FG (at end) in units x avera
Cost of finished goods = 179 units x $42
Cost of finished goods = 7,518

3
Rs.

87,330

62,522
149,852

29,069
178,921

8,159
187,080
(4,002)
183,078

4,584
187,662
(7,518)
 180,144

387,000
(180,144)
Gross Profit 206,856
expenses:
ministrative expenses:
500
fice salaries 24,790
8,700
Total administative expenses 33,990
lling & Marketing expenses:
500
les salaries 28,000
oyalties paid 21,500
1,860
sc. marketing expenses 11,380
n-collectable expenses 280
Total Marketing expenses 63,520
Total operating expenses (97,510)
Operating Income 109,346

rchase discount 840

erest earned 130

NET INCOME 110,316

nos. of units produced:

4,300
oods (at end) 179
ods available for sale 4,479
oods (at start) (120)
S PRODUCED 4,359

nit cost / Average cost / Per unit cost:

COGM
os. of units produced

42

Cost of Finished goods:

goods = FG (at end) in units x average rate
goods = 179 units x $42
goods = 7,518
Closing Entries of Manufacturing Companies:

1 Manufacturing account
Raw material (at start)
Work in process (at start)
Purchase
Transportation in
Direct labor used
Indirect labor
Depreciation expenses
Rent
Misc
(To close: the manufacturing expenses)

2 Raw material (at end)

Work in process (at end)
Purchase discount
Manufacturing account
(To close: all the manufacturing revenue account)

3 Close the manufacturing account:

Income Summary
Manufacturing account (COGM)
Finished goods (at start)
 Rent (10%)
Office salaries
Misc. admin
Rent (10%)
Sales salaries
Royalties paid
Freight out
Misc. marketing expenses
Un-collectable expenses

4 Close the revenue account

Sales
Finished goods (at end)
Interest earned
Income Summary

5 Close the net income or net loss:

a) Incase of net income (When credit side is more)

Income summary
Retained Earning

b) Incase of net loss (When Debit side is more)

Retained earning
Income Summary
 194,210
3,420
8,159
90,563
477
62,522
5,026
2,135
4,000
17,908
g expenses)

7,130
4,002
840
11,972
ring revenue account)

284,332
count (COGM) 182,238
4,584
 500
24,790
8,700
500
28,000
21,500
1,860
11,380
280

387,000
7,518
130
394,648

hen credit side is more)

110,316
110,316

Debit side is more)

Debit
Credit
Closing Entries of Manufacturing Companies:

1 Close the manufacturing expenses account:

Manufacturing account Debit
Raw material (at start) Credit
Work in process (at start) Credit
Purchase Credit
Transportation in Credit
Direct labor used Credit
All Factory overhead Credit

2 Close all the manufacturing revenue account:

Raw material (at end) Debit
Work in process (at end) Debit
Purchase return Debit
Purchase discount Debit
Manufacturing account Credit

3 Close the manufacturing account:

Income Summary Debit
Manufacturing account (COGS) Credit
Finished goods (at start) Credit
Sales return Credit
Sales discount Credit
All types of operating expenses Credit

4 Close the revenue account

Sales Debit
Finished goods (at end) Debit
All types of other income Debit
Income Summary Credit

5 Close the net income or net loss:

a) Incase of net income (When credit side is more)

Income summary Debit
Retained Earning Credit

b) Incase of net loss (When Debit side is more)

Retained earning Debit
Income Summary Credit
Solution of Q9
Name of Company
Cost of Goods Sold
For the period ended June 30, 2002
Particulars Rs. Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 30,000
Add: Net Purchases:
Purchases 68,000
Add: Purchase discount lost 8,000
Gross Purchases 76,000
Net Purchases 76,000
Total raw material avaiable for use/ consumed 106,000
Less: Raw material ( at end) (36,000)
Raw Material Consumed/ Used:

2. Direct Labour:
Direct Labour used
Prime Cost
3. Factory overhead:
a) Fuel consumed:
Fuel (at start) 3,000
Add: Fuel purchase during the year 5,000
Total fuel available for use 8,000
Less: Fuel (at end) (3,400) 4,600

b) Factory repair parts consumed:

Fatory parts (at start) 4,500
Add: Factory parts purchased during the year 4,200
Total parts available for use 8,700
Less: Factory parts (at end) (2,600) 6,100

Misc. Factory overhead 2,300

Depreciation on plant 3,000
Superintendance 2,000
Indirect factory labor 4,000
 Total Factory Overhead
Manufacturing Cost / Factory Cost
4. Work in Process:
Add: Work in process (at start)
Total work in process
Less: Work in process (at end)
Cost of Goods Manufactured
5.Finished Goods:
Add: Finised Goods (at start)
Total Finished Goods available for sale
Less: Finished Goods (at end)
Cost of Goods Sold

Conversion cost = Direct labor + Factory overhead

Conversion cost:
Direct Labor 93,100
add: Factory overhead 22,000
Conversion cost 115,100

Factory overhead rate:

FOH rate = Total Amount of FOH

Total amount of Direct Labor

22,000 x 100
93,100

FOH rate = 23.63 %

Rs.

70,000

93,100
163,100
 22,000
185,100

20,000
205,100
(15,000)
190,100

24,000
214,100
(12,000)
202,100

x 100
 Name of Company
Cost of Goods Sold
For the period ended June 30, 2012
Particulars Rs. Rs. Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 110,000
Add: Net Purchases:
Purchases 500,000
Add: Transportation in 10,000
Gross Purchases 510,000
Less: Purchase return 12,000
Purchase discount 18,000 (30,000)
Net Purchases 480,000
Total raw material avaiable for use/ consumed 590,000
Less: Raw material ( at end) (40,000)
Raw Material Consumed/ Used: 550,000

2. Direct Labour:
Direct Labour used 350,000
Prime Cost 900,000

3. Factory overhead:
Indirect material 100,000
Indirect labour 50,000
other factory expenses 150,000
Total Factory Overhead 300,000

Manufacturing Cost / Factory Cost 1,200,000

4. Work in Process:
Add: Work in process (at start) 50,000
Total work in process 1,250,000
Less: Work in process (at end) (90,000)

Cost of Goods Manufactured 1,160,000

5.Finished Goods:
Add: Finised Goods (at start) 60,000
Total Finished Goods available for sale 1,220,000
Less: Finished Goods (at end) (20,000)

Cost of Goods Sold 1,200,000

Required no.1: Manufacturing Cost
ABC Company
Particulars Rs. Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 176,000
Add: Net Purchases:
Purchases 2,400,000
Add: Transportation in 32,000
Net Purchases 2,432,000
Total raw material avaiable for use/ consumed 2,608,000
Less: Raw material ( at end) (196,000)
Raw Material Consumed/ Used:

2. Direct Labour:
Direct Labour used
Prime Cost

3. Factory overhead:
Total Factory Overhead

Manufacturing Cost / Factory Cost

Required no. 2: Cost of Goods Manufactured:

Manufacturing Cost / Factory Cost

4. Work in Process:
Add: Work in process (at start)
Total work in process
Less: Work in process (at end)
Cost of Goods Manufactured

Requried no.3: Cost of Goods Sold

Cost of Goods Manufactured
5.Finished Goods:
Add: Finised Goods (at start)
Total Finished Goods available for sale
Less: Finished Goods (at end)

Cost of Goods Sold

 Rs.

2,412,000

3,204,000
5,616,000

1,885,600

7,501,600

7,501,600

129,800
7,631,400
(136,800)
7,494,600
7,494,600

620,000
8,114,600
(467,400)

7,647,200
 Name of Company
Cost of Goods Sold
For the period ended June 30, 2002
Particulars Rs. Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 88,000
Add: Net Purchases:
Purchases 366,000
Add: Transportation in 6,600
Gross Purchases 372,600
Net Purchases 372,600
Total raw material avaiable for use/ consumed 460,600
Less: Raw material ( at end) (64,000)
Raw Material Consumed/ Used:

2. Direct Labour:
Direct Labour used
Prime Cost

3. Factory overhead:
Misc. FOH 468,400
Depreciation 90% 104,400
Total Factory Overhead

Manufacturing Cost / Factory Cost

4. Work in Process:
Add: Work in process (at start)
Total work in process
Less: Work in process (at end)

Cost of Goods Manufactured

5.Finished Goods:
Add: Finised Goods (at start)
Total Finished Goods available for sale
Less: Finished Goods (at end)
 Cost of Goods Sold

INCOME STATEMENT
1 Net Sales:
Sales 1,844,000
Less: Sales Discount (8,000) 1,836,000

2 Less: Cost of goods sold: (1,462,200)

Gross Profit 373,800
3 Less:Operating Expenses
Marketing and Admin exp 344,200
Depreciation (10%) 11,600
Interest expenses 16,000
(371,800)
OPERATING INCOME 2,000
4 Add: Other Income:
Rental Income 64,000
Net Income 66,000
 Rs.

396,600

523,600
920,200

572,800

1,493,000

29,800
1,522,800
(38,800)

1,484,000

44,200
1,528,200
(66,000)
1,462,200
 Name of Company
Cost of Goods Sold
For the period ended June 30, 2002
Particulars Rs. Rs. Rs.
1. Raw / Direct Material Consumed/ Used:
Raw material (at start) 30,000
Add: Net Purchases: 290,000
Total raw material avaiable for use/ consumed 320,000
Less: Raw material ( at end) (22,000)
Raw Material Consumed/ Used: 298,000

2. Direct Labour:
Direct Labour used 350,000
Prime Cost 648,000

3. Factory overhead:
Total Factory Overhead 552,000

Manufacturing Cost / Factory Cost 1,200,000

4. Work in Process:
Add: Work in process (at start) 39,000
Total work in process 1,239,000
Less: Work in process (at end) (39,000)

Cost of Goods Manufactured 1,200,000

Req 2: Average Cost:

Cost of goods manufactured / Nos. of units produced
1,200,000 20
60,000
Total amount of FOH:
Indirect labor 46,000
Light & Light 4,260
Depreciation 4,700
Repair to machinery 5,800
Misc FOH 29,000

Total actual FOH 89,760

Applied FOH
(290,000 x 30%) 87,000

UNDER APPLIED 2,760