COGS Material purchses Material consumption

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 ]

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/-