ITPEC FE Morning April 2021 Question 78
ITPEC FE Morning April 2021 — Question 78 of 80
The COGS formula for a manufacturer is:
COGS = Product inventory at beginning of period + Product manufacturing cost in current period − Product inventory at end of period
This means: what was ready for sale at the start, plus what was finished during the period, minus what remains unsold at the end.
Why not others:
- (a) This is the formula for product manufacturing cost (materials + labor + expenses), not COGS — it ignores inventory changes
- (c) Subtracts work in process inventory instead of product (finished goods) inventory — this formula calculates manufacturing cost of finished goods, not cost of goods sold
- (d) Uses work in process inventory on both sides — this computes the cost of goods manufactured (completed production), not cost of goods sold
Key rule: COGS uses finished product inventory (beginning + manufactured − ending). If the formula mentions "work in process," it's about production cost, not sales cost.
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