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Lesson 1: Course Orientation and Defining Managerial Accounting

Step 3: Cost of Goods Sold

The final step is to calculate the cost of goods sold (COGS). This step includes the finished goods inventory, which is the inventory that accounts for goods that have been manufactured but not yet sold. You will add to it the goods that you completed this period (COGM, which is found in Formula 1.2). The formula is shown below.

Formula 1.3.  Cost of Goods Sold
This image shows the formula: Beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory = cost of goods sold

 

 
Guided Example
For your example, the COGS is shown below.
Figure 1.6. Example Cost of Goods Sold
 Beginning Finished Goods Inventory$ 400,000
+Cost of Goods Manufactured +$ 1,130,000
-Ending Finished Goods Inventory - $ 350,000
Cost of Goods Sold$ 1,180,000

 


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