- This topic has 3 replies, 3 voices, and was last updated 10 years ago by
.
- Posts
Hi, could you help me to understand about cost of sale.
As far as I understood, CoS is mainly the purchases during the year and if we have any purchases in stock by the year end – that should be an inventory.
But, what about others possible costs, that could be CoS , for example , wages of people who work in production of our product or other operating costs.
2) what if our purchases are intangible, for example, our company buy traffic or minutes etc. we could treat it as purchases, but it’s not an inventory…
I mean, the formula will not work to calculate inventory in that case.
Thank you !The cost of sales is the cost of producing what we sell.
If we buy goods from a supplier, then the cost of what we sell is the cost of what we bought less the cost of the closing inventory (because we did not sell what is left in inventory).
If we produce our own goods, then we have to add up all the costs of production.
With regard to intangibles – this is going too far for Paper F3. Development costs would be capitalised and the amortisation will be treated as part of the cost. (But this will not be asked as part of a cost of sales question and the treatment of intangibles is dealt with in a later chapter).
I don’t actually know what you mean by ‘traffic or minutes’!Wages is an operating expenses and will not be under COS. it’s merely the cost of product or goods sold.
Cost of production under management accounting is simply the direct material, direct labour and direct expenses, and depending on whether you use Full costing or absorption costing, the fixed costs will be added in. FIFO and LIFO affects the inventory valuation.
Cost of goods sold under financial accounting terms just means Opening stock + Purchases – Closing stock. Of course inventory valuation methods like FIFO, LIFO affects the COGS as well.
- You must be logged in to reply to this topic.