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The cost of goods produced and sold by a manufacturing concern, and the cost of
goods purchased and sold by a trading concern directly depends upon the cost of
raw materials, work-in-progress and finished goods held as an inventory, by such a
business organisation. As a result of which ‘Gross Profit’ directly and ‘Net Profit’
indirectly of such business organisation depends upon cost of such inventory. It
means if the stock of raw materials, work-in-progress and finished goods are not
valued correctly and in an appropriate manner, then it affects the profitability.
Cost of Includes
Raw Material Cost of Raw Material, Custom Duty, Transit Insurance,
Octroi Duty, Carriage, Loading-Unloading Charges
Finished Goods Cost of Raw Material, Custom Duty, Transit Insurance,
(Manufactured) Octroi Duty, Carriage, Loading-Unloading Charges, Factory
Direct Expenses such as Factory Wages, Factory Power &
Fuel, Factory Depreciation, Factory Rent, Factory
Supervisor’s Salary, Mould Expenses, Repairs, Insurance
Finished Goods Cost of Purchased Finished Goods, Custom Duty, Transit
(Purchased) Insurance, Octroi Duty, Carriage, Loading-Unloading
Charges
Compare the Cost and Net Realisable Value (NRV), lower of the two is considered
as value of inventory.
It means raw material purchased first are issued first for production, by the
manufacturing concern and finished goods purchased first are sold first, by the
trading concern.
It means raw material purchased last are issued first for production, by the
manufacturing concern and finished goods purchased last are sold first, by the
trading concern.
1.
Ascertain the value of Closing Stock as on 31.03.2015 using (a) LIFO (b) FIFO and
(C) WAM
2.
Using (a) LIFO (b)FIFO and (C) WAM determine the value of Closing Stock as on
31.12.2014 when stock on hand was 2200 units@ Rs. 10 per unit
3.
ABC Ltd. Wants you to ascertain the value of its closing stock as on 31.12.2013
Using (a) LIFO (b)FIFO and (C) WAM as on 1.10.2013 when stock on hand was
22000 units@ Rs. 11 per unit.