The children's department of a major department store had $615,000 in merchandise at the beginning of...

The children's department of a major department store had $615,000 in merchandise at the beginning of the year During the year, $836,000 purchases were made. Assuming the yearend inventory was $573,200, what is the cost of goods sold? What was the total amount of merchandise available for sale?

According to the results, compare and contrast the cost elements associated with a retailer (or service-based business) and a manufacturer? What additional product costs must be recognized within a manufacturer? What additional factors must be recognized by a company that uses a JIT inventory system?

Solutions

Expert Solution

Cost of Goods Sold = Opening Inventory + Purchases - Ending Inventory

In the given case Cost of Goods Sold = $615000+$836000-$573200 = $877800

Total amount of Merchandise available for sale = $615000+$836000 = $1451000

The cost elements associated to the manufacutrer which are not associated with retailer are
Direct Labour Costs, Manufacturing Overheads which are related to production
More stock requirement, as manufacturer has inventory of raw materials, work in process and finished goods as compared to retailers or service based business who doesnot need to keep huge stock in hand.

The additional product costs associated that must be recognised within a manufacturing are Direct Labour Cost, Manufacturing Overheads, Cost of wastage etc

Factors to be considered for JIT (Just In Time) Inventory system:
1. Effectively judging the inventory requirements as to when the inventory is needed and how it is to be obatined and how much of it to be obtained.

2. Good relationship with suppliers so that they can supply you with the inventory when the companies requires.

ekkarill92 answered 1 hour ago

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