For Professor Ryan: Class Participation
lken82
wk2_dq2.docx· Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by ANDREW WAREING
Aug 26, 2014, 6:46 AM
The cost of goods sold is the total cost that can be attributed to the production of the products which will be sold by the company. The cost of goods can include material costs and the labor used through production. It can be calculated on both a perpetual and periodic system. In perpetual system, the cost of goods sold is recorded each time a sale is completed. In a periodic system the cost of goods sold is calculated at the end of the period.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting tools for business decision making (4th ed.). : John Wiley & Sons Inc.
· Comment on Aug 27, 2014, 2:09 AM
Re: WEEK TWO - DISCUSSION QUESTION # 2
Aug 27, 2014, 2:09 AM
Andrew - we have to make our product, and this cost is our "cost of goods sold". This can also be applied to a service business, if we can define a cost of that service. A dentist visit will have costs involved; for the cleaning solution, the personnel to perform the service, etc. Therefore, this can also be a cost of goods sold! Depending on the type of company and product, this can be many types of things; payroll, materials, supplies, etc.
Class - What examples can you think of?
· Comment on Aug 27, 2014, 12:59 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by ANDREW WAREING
Aug 27, 2014, 12:59 PM
Other examples in my industry, which is software, would be items such as labor, office space, and investment in IT infrastructure. In business consulting the costs of sale would be the research costs, travel expenses and report production costs. For a company in the spectacle industry costs would be associated with the manufacture of frames and lenses as well as the screws and other items required to complete manufacture.
· Comment on Aug 28, 2014, 8:27 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 28, 2014, 8:27 PM
Andrew - you can see that with each industry, the cost of goods sold can be described. Good examples! No matter if it is an eyeglass business or a consulting business, we can identify and give a value to the items that we need.
· Comment on Aug 26, 2014, 8:41 AM
Anna: WEEK TWO - DISCUSSION QUESTION # 2
posted by ANNA WEBB
Aug 26, 2014, 8:41 AM
Cost of goods sold is an expense. The total cost of merchandise during a specific period. Under a periodic inventory system, we calculate this value by adding the cost of goods on hand to the cost of goods purchased at the beginning of the period. Then, at the end of the period - subtract the current cost of goods on hand.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making ( 4th ed.). NJ: John Wiley & Sons
· Comment on Aug 28, 2014, 7:25 PM
Re: Anna: WEEK TWO - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 28, 2014, 7:25 PM
Anna - I agree with your formula, except the cost of goods sold is defined as: beginning inventory + purchases - ending inventory.... This gives us the change in our inventory levels; meaning that this dollar amount is now the "cost of goods sold" and should be subtracted from sales to arrive at our "gross profit".
Class - Questions or Comments?
· Comment on Aug 26, 2014, 12:28 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Mark Pollack
Aug 26, 2014, 12:28 PM
My other classmates defined the cost of goods sold very well. The "cost" is an important part of the definition because it shows the true meaning of the statement. How mush did product "x" cost the company so that it may be sold. The section is filed under an expense on your balance sheet and is a great tool.
When I owned my animal hospital, I could look at the cost of the goods sold and the income I generated from those products. I could tell rather quickly on my itemized list where my highest levels of return were generated and where I needed to raise pricing. The computer system we used took the product out of inventory and sent it directly to Quickbooks.
Without this type of data, a business owner, manager, investor, etc would not understand what the sale is costing them. Therefore, product markup, promotions, sales, etc would be impossible to regulate profitability.
· Comment on Aug 26, 2014, 3:55 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by DONALD DENNIS
Aug 26, 2014, 3:55 PM
What is the reason distribution costs are not included? Although distribution costs are part of the cycle, it is not direct for the sake of production. Just a thought.
· Comment on Aug 27, 2014, 2:30 AM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 27, 2014, 2:30 AM
Mark - that is a great example, these concepts can be applied to almost every business. By looking at this per product line, we can see where we need to make changes. Sometimes, the change may be to eliminate the particular product or service, because we cannot lower the cost or raise the price due to outside factors.
· Comment on Aug 27, 2014, 5:09 AM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Mark Pollack
Aug 27, 2014, 5:09 AM
That is very true Linda. We also used the data to see if we could create a loss leader. We know that we cant compare product prices to "big box" retailers such as PetSmart; however, if we can have the same or lower prices on the most shopped items, we can capture the revenue elsewhere. It is vital to know a breakdown of the cost of goods sold so you can see what people are buying, what is it costing you to sell the item, and overall profitability. understanding these reports as an owner really drives your ability to be a successful business.
I have had a number of people tell me that they want to start a company. It is a very analytical job to run a successful business because you need to understand accounting principles even if you hire a CPA. You should always hire a CPA!!
· Comment on Aug 26, 2014, 3:51 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by DONALD DENNIS
Aug 26, 2014, 3:51 PM
Costs of goods sold are the direct costs that influence the production of goods sold. These production costs include materials, labor and other production costs of a particular good. What is not included in this is distribution and sales force costs. COGS is shown on the income statement. These costs can also be deducted from the revenue in order to find the gross margin.
We calculate this by adding the amount of purchases made during a specific period, then deducting the ending inventory.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting tools for business decision making (4th ed.). : John Wiley & Sons Inc
· Comment on Aug 27, 2014, 2:17 AM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 27, 2014, 2:17 AM
Donald - this is an important calculation; to determine our gross margin. The sales less cost of goods sold tells us this figure, so we can see how we are doing and percentage-wise also. This is before subtracting our operating costs as well.
Class: how do we calculate our cost of goods sold figure?
· Comment on Aug 27, 2014, 8:52 AM
posted by DONALD DENNIS
Aug 27, 2014, 8:52 AM
Beginning Inventory + Inventory Purchases - End Inventory = Cost of Goods Sold
I currently sell on ebay (more as a hobby right now). If I were to have an inventory count at the beginning on August that shows I have $700 worth of items on hand. I purchase another $400 worth of items. At the end of August I show, I have an inventory amount worth of $500. Here is how I will solve.
$700 (beginning Inventory) + 400 (purchases) - 500 (ending inventory) = $600
· Comment on Aug 27, 2014, 8:49 PM
Response from Patricia to Donald
posted by patricia surber
Aug 27, 2014, 8:49 PM
Hello Donald:
You are correct. when figuring the costs of goods sold the first two numbers that a company has is the current inventory amount and the inventory amount from the previous inventory calculation. The purchases in between the last inventory up until now is the amount that needs to be added to the previous inventory amount then subtracted from the current inventory amount.
For example, if I had a current inventory amount of $20,000 and a previous inventory amount of $50,000 then I need to add all my purchases for that time period since the last inventory which could be $40,000.
$50,000 + $40,000 - $20,000 = $70,000 (cost of goods sold)
· Comment on Aug 28, 2014, 8:32 PM
Re: Response from Patricia to Donald
posted by Linda Moore
Aug 28, 2014, 8:32 PM
Patricia -the calculation is important; we have to understand the fact that we have purchases during the period, and a change in our inventory level. This has to be integrated into our income statement to see our profit level.
· Comment on Aug 28, 2014, 7:40 PM
posted by Linda Moore
Aug 28, 2014, 7:40 PM
Donald - good example. This means that this is what it cost you to sell the items you did sell. Then, you can figure out if you've made a profit or not. This can be for a merchandising business or a production facility, and the concepts also can apply to a service business. What does our service cost to provide? For example, a hairdresser; the haircut will cost a certain amount as far as shampoo, hair gel, the time of the hairdresser, part of the overhead, etc.
· Comment on Aug 26, 2014, 10:05 PM
posted by patricia surber
Aug 26, 2014, 10:05 PM
The cost of goods sold is defined as the total cost of merchandise sold during a certain time frame. The cost of goods sold is an expense which is revenue associated from the selling of goods. Only a merchandise company has the cost of goods sold because a service company have no use for such an expense.
To calculate value:
1) The way to calculate this value is to begin with the beginning inventory value which is the ending inventory from the previous period.
2) Add all of the amounts from each invoice for products received during that month which is the total inventory purchases for that time frame.
3) Add all the labor costs such as wages and salaries of all employees who work for the company.
4) Add all the materials, supplies, and other costs to manufacture the goods.
5) Add all these amounts together which will be the total cost of goods that are available.
6) Find the ending inventory value.
7) Take the total cost of goods that are available minus the ending inventory value which gives you the cost of goods sold.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons
· Comment on Aug 27, 2014, 2:17 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by JASON YORGENSEN
Aug 27, 2014, 2:17 PM
Class,
The costs of goods sold can be seen as an expense. It is the cost of the total starting inventory plus any purchases made. That total is subtracted by the ending inventory giving a business the cost of goods sold. That cost can change depending on how much inventory that the business is when it was purchased. Depending on inflation the cost of the goods in inventory can go up or down. It is important for businesses to sell off any inventory quickly to ensure that they maximize profits. This is why i feel many businesses will go to other countries to build their inventory. Attempting to keep the costs low and the price point high.
Jason Yorgensen
· Comment on Aug 28, 2014, 8:44 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 28, 2014, 8:44 PM
Jason - that's the important part; to make sure our inventory moves; is selling quickly. We don't want to end up with outdated or too much inventory, that won't sell. It is important to understand our customer, our client; and to get them the best products at the best cost. We have to always remember we have competition to think about; what are the competitors doing? Do they have a cheaper or better product that can cause us to lose sales? These are some of the questions we have to ask ourselves.
· Comment on Aug 27, 2014, 2:29 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by TIFFANY MINGO
Aug 27, 2014, 2:29 PM
Cost of goods sold is related to how much a company produces a certain product and what they sell it for on the market. It pertains to the amount of money to create the product and how much revenue they are making off of selling it. Cost of goods sold is shown on the income statement and is subtracted from the net income or revenue for a certain period of time where it tells a business how well their gross margin is. To calculate COGS you would take the amount of inventory plus the amount of revenue they make off of selling the product minus the purchases they made related to the product.
· Comment on Aug 28, 2014, 6:17 PM
Re: WEEK TWO - DISCUSSION QUESTION # 2
posted by Kierra Austin
Aug 28, 2014, 6:17 PM
Cost of goods sold is the cost that goes into creating the products that a company sells. Therefore, the only costs included in the measure are those that are directly tied to the production of the products. There are several ways to calculate cost of goods sold but one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period then deducting the ending inventory. This calculation gives the total amount of inventory or, more specifically, the cost of this inventory, sold by the company during the period.
