What is the cost of goods purchased?
The cost of goods purchased is the net cost of merchandise acquired. The calculation is to add freight in to the initial purchase cost and then subtract the following items: Purchase allowances. Purchase discounts.
To calculate your cost of goods available for sale, add your beginning inventory amount to the purchases you made during the accounting cycle. The cost of goods available for sale is part of your cost of goods sold equation.
- The cost of goods available for sale is the total recorded cost of beginning finished goods or merchandise inventory in an accounting period, plus the cost of any finished goods produced or merchandise added during the period.
- Calculate gross profit by subtracting cost of goods sold from sales. Selling and administrative expenses can be variable or fixed. Therefore, you should treat the selling and administrative costs like a mixed cost. In this case, the variable rate is $5 per unit and the fixed cost is $112,000.
- Add up the cost of direct materials used in production, direct labor used in production, and beginning goods in process, then subtract the ending goods in process. This will give you the total cost of goods manufactured for the year. Add the beginning finished goods inventory to the cost of goods manufactured.
A retailer's cost of goods sold is equal to the cost of its beginning inventory plus the cost of its net purchases (the combination of these is the cost of goods available) minus the cost of its ending inventory.
- Sales tax you pay for inventory used in manufacturing your goods is a cost of goods sold. The inventory you purchase is also a cost of goods sold; however, the sales tax expense for the inventory is actually an overhead expense, which is ultimately figured into your total cost of goods sold.
- The cost of the merchandise purchased but not yet sold is reported in the account Inventory or Merchandise Inventory. Inventory is reported as a current asset on the company's balance sheet. Inventory is a significant asset that needs to be monitored closely.
- Definition: The cost of sales, also known as the cost of goods sold (COGS), represents the direct costs related to the manufacturing or purchasing of a good that is sold to a customer. Companies use this measurement to calculate their gross margin.
Updated: 26th November 2019