COGS Material purchses Material consumption


financial specialist

Can any one explain with practical example considering Inventory Accounts in entry mode.

Difference between below

1. Purchase cost.
2.Cost of material consumption.
3.Cost of good sold.
 
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Self Employed and Agriculture

Dear Divesh, Consider Following Example

Consider Computer Assembly and sale of Assembled Computer.

Purchases :

1. Screen - 5000

2. Mouse - 200

3. Key Bard - 100

4. Mother Board - 5000

5. Sundry Consumables - 200

Total Purchases - 10500, (Assume all units are purchased in 5 Quantity)

So total Purchase price will be Rs. 10500 X 5 = Rs. 52,500/-  [ Rs. 52,500/- will be PURCHASE COST ]

Out of Above Purchases Suppose 2 Computers are Assembled and ready for sale

Rs. 10,500 X 2 = Rs. 21000  [ Rs. 21,000/- will be COST OF MATERIAL CONSUMPTION ]

to make there 2 computer assembly labour/technical person cost is Rs. 1,000/- for each computer

so  total cost will be Rs. 21000 (Material) + 2000 (Labour) = Rs. 23,000/- [ Rs. 23,000/- COST OF GOODS SOLD ]

 
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CHIEF ACCOUNTANT

Raw Materials A (10kg): Rs.10000

Raw Material B (10kg): Rs.20000

Total Purchase Cost : Rs.30000

Finished Goods Z (2 Packet) produced with 5 Kg of Raw Material A & 4 Kg of Raw Material B

So , Total Material Consumption – 10000*5/10 + 20000*4/10 = Rs.13000/-

Lets consider ,Other Direct Cost (like, Factory Electricity, Wages etc) for making Finished Goods Z(2 packet) is Rs.4000

Out of 2 Packets of FGs, 1 Packet Sold, Therefore, Cost of Goods Sold = Rs.13000/2+4000/2 = Rs.8500/-


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