Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Fundamental of Accountancy,
12 Business, and Management 2
First Grading (Module 2)
Instructor: Mark Dave C. Florano
PSBC
Learning Materials
Name: _________________________________________
Grade and Strand: ________________________________
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
Virtus, Scientia, Et. Labor; To learn more, to live better!
Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Fundamental of Accountancy, Business, and Management 2
Module 2
The Cost of Sale and Cost of Goods Sold
Cost of sales (also known as cost of revenue) and Cost of goods sold or COGS both track how much it
costs to produce a good or service. These costs include direct labor, direct materials such as raw materials, and
the overhead that's directly tied to a production facility or manufacturing plant. Both show the operational
costs that go into producing a good or service. If cost of sales is rising while revenue stagnates, this might
indicate that input costs are rising, or that direct costs are not being managed properly. Cost of sales and
COGS are subtracted from total revenue, thus yielding gross profit.
Cost of sale- is the accumulated amount of all cost on
the product that have been sold. This term usually this
term is used for trader or buy and sell business.
Cost of goods sold- is the accumulated amount of all
cost used to produce the product that have been sold.
This term usually this term is used for a manufacturing
type of business.
NOTE: Companies that offer goods and services are
likely to have both cost of goods sold and cost of sales
appear on their income statements.
Process of Computation for cost of sales
Beginning Inventory
Add: Purchases_______________
Total Goods Available for Sale
Less: Ending Inventory_________
Cost of Sales
Process of Computation for cost of goods sold
Materials NOTE: Incase the value for materials
Labor used is not stated in the problem, this
Add: Factory Overhead_______ procedure may be use.
Manufacturing Cost
Add: Work in Process Beginning Material Beginning
Total Working in Process Add: Purchases (for material)
Less: Work in Process Ending__ Total Materials Available
Finished Goods Less: Materials Ending_____
Add: Beginning Inventory_____ Total Materials Used
Total Goods Available for Sale
Less: Ending Inventory_______
Cost of Goods Sold
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
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Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Tips: This important note will help you to solve some problems about cost of goods sold
Materials can be categorized as direct and indirect materials
Labor can also be categorized as direct and indirect labor
Overhead is composed of fixed and variable overhead
If the problem is silent about direct and indirect materials and labor, the amount will be considered as
direct
The term “Prime cost” is also equivalent to direct materials + direct labor
The term “Conversion cost” is also equivalent to direct labor + total overhead
Beginning balance of accounts are the ending balance of the same account from the prior year. (Ex.
The amount of beginning inventory of year 2020, is the amount of ending inventory from year 2019)
Cost of sales and cost of goods sold (COGS) determined the total cost used for the business operation, this
data is use to know the value of profit of the business by deducting the cost of sales/COGS to the total sales of
the business. A negative amount means a loss of the business, this is an essential process to complete the
business’s statement of comprehensive income.
Sample Problem
XYZ Company has the following records for the month of Oct. Find the value of cost of goods sold using the
given data below.
Material: P10,000
Labor: P7,500
Overhead: P8,000
Work in Process Beginning: P4000
Merchandize Inventory Beginning: P6,200
Work in Process Ending: P4,500
Merchandize Inventory Ending: P5,600
Solution
Materials P10,000
Labor 7,500
Add: Factory Overhead______ 8,000
Manufacturing Cost 25,500
Add: Work in Process Beginning 4,000
Total Working in Process 29,500
Less: Work in Process Ending__ 4,500
Finished Goods 25,000
Add: Beginning Inventory_____ 6,200
Total Goods Available for Sale 31,200
Less: Ending Inventory_______ 5,600
Cost of Goods Sold P25,600
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
Virtus, Scientia, Et. Labor; To learn more, to live better!
Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Pre-Test
Complete the table below to compute for the cost of goods sold.
2019 2020
Materials 25,000
Labor 18,000 20,000
Add: Overhead 12,000 13,800
Manufacturing Cost
Add: Goods in Process Beginning 16,000
Total Goods in Process 82,500
Less: Goods in Process Ending 19,500
Finished Goods 54,000
Add: Inventory Beginning 22,500
Total Goods Available for Sale
Less: Inventory Ending 21,000
Cost of Goods Sold 57,500
New Lesson: Income Statement and Statement of Comprehensive Income
An income statement or profit and loss account (also
referred to as a profit and loss statement (P&L), statement
of profit or loss, revenue statement, statement of financial
performance, earnings statement, statement of
earnings, operating statement, or statement of
operations) is one of the financial statements of a
company and shows the
company's revenues and expenses during a particular
period.
It indicates how the revenues (also known as the “top
line”) are transformed into the net income or net profit
(the result after all revenues and expenses have been
accounted for). The purpose of the income statement is to
show managers and investors whether the company made
money (profit) or lost money (loss) during the period being
reported.
An income statement represents a period of time (as does the cash flow statement). This contrasts with
the balance sheet, which represents a single moment in time.
Charitable organizations that are required to publish financial statements do not produce an income
statement. Instead, they produce a similar statement that reflects funding sources compared against program
expenses, administrative costs, and other operating commitments. This statement is commonly referred to as
the statement of activities. Revenues and expenses are further categorized in the statement of activities by
the donor restrictions on the funds received and expended.
KEY TAKEAWAYS
An income statement is one of the three (along with balance sheet and statement of cash flows) major
financial statements that reports a company's financial performance over a specific accounting period.
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
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Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Net Income = (Total Revenue + Gains) – (Total Expenses + Losses)
Total revenue is the sum of both operating and non-operating revenues while total expenses include
those incurred by primary and secondary activities.
Revenues are not receipt. Revenue is earned and reported on the income statement. Receipts (cash
received or paid out) are not.
An income statement provides valuable insights into a company’s operations, the efficiency of its
management, under-performing sectors and its performance relative to industry peers.
Example of Income Statement/Statement of Comprehensive Income
Income Statement: With components of profit and loss recognized. This statement
includes regular line items which in the language of IAS (International Accounting Standards) are
known as profit and loss items.
Statement of other Comprehensive Income: This statement starts with the profit or loss as
calculated under Income statement and contains components of other comprehensive income.
Simply this statement contains such line items which are not recognized in profit or loss and if
disclosed under Income Statement then it might mislead users of financial statements as they may
consider them as regular line items.
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
Virtus, Scientia, Et. Labor; To learn more, to live better!
Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Activity: Matching Type
____1. Conversion cost A. Profit and loss account
____2. Income Statement B. Materials + Labor
____3. Cost of Sale C. Sales is greater than expenses
____4. Loss D. Contains other business income
____5. Cost of goods sold E. Labor + Overhead
____6. Prime Cost F. Cost for trader
____7. Profit G. Sales is less than expenses
____8. Statement of Comprehensive income H. Cost for manufacturer
Quiz 1.1
ABC company is a manufacturing type of business, the documents related about its cost was lost to a fire, the
company manage to retrieve some data to use. Determine the cost of goods sold for this month of ABC
company using the limited data provided.
Company’s sale for the month is 587,000 with a gross profit of 248,000
Manufacturing cost is amounting to 253,500
Prime cost is 187,000. The purchased materials based on receipt recovered is 87,000
The company’s beginning and ending inventory for materials is 73,000 and 68,000 respectively
Factory overhead is 70% of labor cost
The total work in process goods is amounting to 340,000, and the finished product is 329,000
Last month merchandise ending inventory is 63,000
Amount
Material Beginning
Add: Purchases (for material)
Total Materials Available
Less: Materials Ending
Total Materials Used
Materials
Labor
Add: Overhead
Manufacturing Cost
Add: Goods in Process Beginning
Total Goods in Process
Less: Goods in Process Ending
Finished Goods
Add: Inventory Beginning
Total Goods Available for Sale
Less: Inventory Ending
Cost of Goods Sold
Sales
Less: Cost of Goods Sold
Gross Profit
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
Virtus, Scientia, Et. Labor; To learn more, to live better!
Paete Science and Business College, Inc.
J. P. Rizal Street, Paete, Laguna
Quiz 1.2
Prepare a Statement of Comprehensive Income for KBS company for the year end 2019. Analyze and use the
data below.
Sale P2,736,000
Sale of Scrap Materials P34,000
Salaries Expense P263,000
Utilities Expense P88,000
Interest Income P35,000
Rent Expense P120,000
Loss on Sale of Assets P55,000
Gain on Exchange Rate P8,000
Advertising Expense P75,000
Supplies Expense P52,000
Transportation Expense P40,000
Income Tax P110,000
COGS P820,000
Revenues
Expenses
Net Income
Net Income
Other Comprehensive Income
Comprehensive Income
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Address: J. P. Rizal Street, Paete, Laguna 4016; Telephone Number: (049) 557-0184; Fax Number (049) 557-0184
Virtus, Scientia, Et. Labor; To learn more, to live better!
