Question

What cost might be included in the items in inventory and COGS for a manufactoring company versus what cost would be included in the items in inventory and COGS for a merchandising company?

Answer 1

Let’s understand each items one by one;

Inventory for a manufacturing company;

As we know that manufacturing company involves in converting raw materials into finished product that is why followings items are included in the inventory;

·        Raw materials inventory

·        Work in process inventory

·        Finished goods inventory

COGS for a manufacturing company;

Followings items are included in the COGS for a manufacturing company;

·        Beginning Finished Goods Inventory

·        Cost of Goods Manufactured

·        Finished Goods Available for Sale

·        Ending Finished Goods Inventory

·        Cost of Goods Sold

So COGS is calculated as follow in case of manufacturing company;

Beginning Finished Goods Inventory
Add: Cost of Goods Manufactured
Finished Goods Available for Sale
Less: Ending Finished Goods Inventory
Cost of Goods Sold

Inventory for a merchandising company;

As we know that merchandising company involves in buying and selling of products that is why only ending units available for sales are known as inventory. So only following single item is included in inventory for a merchandising company;

·        Merchandise inventory

COGS for a merchandise company;

Followings items are included in the COGS for a merchandising company;

·        Beginning Inventory

·        Purchases

·        Purchases discount

·        Purchases returns

·        Transport in

·        Ending inventory

So COGS is calculated as follow in case of merchadising company;

Beginning Inventory		………………
Add: Purchases	…………
Less: Purchase discount	…………
Less: Purchase returns	…………
Net purchases	…………
Add: Transport in	…………
Net cost of purchases		………………
Cost of goods available for sale
Less: Ending inventory		……………….
Cost of goods sold		……………….