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Closing inventory is the finished goods that are ready to be sold to the customers which are actually part of the cost of goods sold.
Closing inventory is the production cost of units which is calculated like this:
Raw material————-500
Work-in-Progress——-500
Finished goods———-900The amount of finished goods will then go to the cost of goods sold as closing inventory.
Cost of goods sold is calculated like this:
Opening inventory 1000
Purchases 1200
Total Production costs 2200
Closing inventory (900)
Cost of goods sold 1300All the material cost, labour cost, variable overheads and fixed overheads are part of the cost of goods sold and included before deducting closing inventory.
(but all these costs would be included in purchases?)The raw material inventory is subtracted from the purchases (which will be of raw materials).
Other production costs (labour and overheads) would then be added to the purchases to get the total production costs. WIP will be subtracted from the total production costs, as will the finished goods inventory.Appreciate however that you can never be asked to prepare a profit statement such as this in the Paper MA exam.
Inventory costs involved several costs which are calculated like this:
Raw material———————————950
Work-in-Progress—————————400
Finished goods——————————900Raw material involves several costs such as:
material cost———————————350
labour cost————————————200
Overheads————————————400
Total Production costs———————950Raw material cost involves the costs of material cost, labour cost and overheads (correct?)
Cost of goods sold is calculated like this:
Opening inventory—————————————————————1000Purchases:—————————————————1200
– less: material cost—————————————(350)
– less: labour cost——————————————(200)
– less: overheads——————————————(400)Total Production costs———————————————————1950
less: Work-in-Progress———————————————————(400)
less: Finished goods————————————————————(900)
Cost of goods sold—————————————————————650We are taking finished goods as closing inventory which should be less from total production costs but WIP is less because goods are not fully ready yet.
Is it all right now?
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