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Hello,
Please explain calculation of COS. I undestand calculation of Raw materials (op stock +purch less cl stock) but stuck with with understanding furher WIP & Finidsged goods. Why we deduct the difference of Op & Cl WIP and Cl FG balance?
Thank youThe very, very simple way of arriving at a “Cost of goods sold” value is to take the figure for opening inventory, add on the value of purchases and deduct the figure for closing inventory.
Think of it this way.
If I start the year with 500 desks in inventory and I buy 3,800 during the year. At the year end, I count how many desks I still have in inventory and there are 260.
How many did I sell during the year? 4,040?
The figure of 4,040 is arrived at as follows: 500 + 3,800 – 260 or opening inventory + purchases – closing inventory
If you were to put $ signs in front of all those figures, can you see that’s how you arrive at the cost of goods sold?
And that’s the reason why we make the adjustments in the answer to Numbers that you were asking about
Ok?
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