Analysis of COGS and Primary Cost in Cost Accounting Principles

This assignment presents a detailed cost sheet analysis for XYZ Ltd., demonstrating the calculation of primary costs and the cost of goods sold (COGS). The solution meticulously breaks down various cost elements, including raw material consumption, direct expenses, factory overheads, and office administration overheads, to arrive at the actual factory cost and cost of production. It also includes the calculation of the cost of goods sold, considering opening and closing stock of finished goods, and the addition of selling and distribution expenses. The assignment provides an interpretation of the results, emphasizing the distinction between primary and secondary costs and their importance in determining profitability. It also defines COGS and its significance in assessing a company's operating revenue and gross profit, offering insights into how efficiently a firm manages its resources in the manufacturing process. The final calculation of the selling price, based on a 20% profit margin, completes the comprehensive cost analysis.

Principle of Cost and
Management Accounting

Question
Statement showing primary cost and COGS (cost of goods sold):
Statement of cost sheet of XYZ ltd:
Opening stock of raw material
18000
0
add: purchase of raw material
38000
0
add: fright inward 18000
57800
0
less: closing stock of raw material 90000
purchase return 2400
purchase discount 2600
Raw material consumed 483000
add: Direct exp. 80000
account labour 1600
Prime cost 564600
add: Factory overhead:- indirect labour 19000
Repair factory 7000
Heat lights & power: 32500/10*8 26000
Rent & rates: 3000*2/3 2000
Misc. factory exp. 9000
Depreciation on building: 500000*5%*8/10 20000
Depreciation on plant & machinery: 435000*7/10 30450
Factory supervision 5000 118450
Factory cost before WIP adjustment 683050
add: Opening stock of WIP
10000
0
less: closing stock of WIP 96000 4000
Actual factory cost 687050
Add: Office administration overhead
office salaries 4300
heat, lights & power:7000/10 700
Rent & rates 1000
Depreciation on office applinces:18000*5/100 900
Depreciation on building:500000*5/100*1/10 2500
Interest on borrowed fund 1000
add: accrued interest 2000 3000
Cost of production 699450

add: opening stock of finished goods
15000
0
Fright outward 5000
less: closing stock of finished goods -67000 88000
Cost of good sales 787450
add: salaries distribution 9000
promotion sales 11500
travelling & commission 17000
Depreciation on building 2500
Heat light & power 700 40700
Total cost 828150
Add: profit: 828150*20/80
207037.
5
Selling price 1035188
Interpretation: The source of expenses which are specified into either principal or
secondary is represented by cost elements. Primary cost factors emerge from the processing of
globally sourced output factors. These are the charges spent immediately to create a good or
service. Both prices are valuable for the estimation of the profit of profitability of the good or
service and for the measurement of the complete price cap over which the good is to be
distributed. However because costumer service may not contain operating costs, rates that
guarantee long-term stability are not ideal for estimating costs. Total cost of the products
produced (COGS) relates to a firm’s economic cost of making the consumer goods. The value of
the product and energy specifically used to focus on producing is included in this number.
Indirect charges, such as production costs and prices serious effect, are exempt. The COGS
mostly on financial information is also an interesting stat when it is deducted again from profits
of a company to assess its operating revenue. Gross profit is really a metric of productivity that
assesses how effective a firm is in handling its labour and resources in the manufacturing
process.