ASSIGNMENT 2
Submitted
By
Sharda Jayshree
MBA 1(sec-C) Roll no-195

GROUP NAME-COST CONTTRIBUTER.
TOPIC NAME-COST OF GOOD SOLD

INTRODUCTION-:
Cost is generally known as something given up exchange for goods and services .Cost of goods sold refers to the inventory costs of those goods a business has sold during a particular period. Costs are associated with particular goods using one of several formulas, including specific identification, first-in first-out , or average cost. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of goods made by the business include material, labour .
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CONCEPT-:
Many businesses sell goods that they have bought or produced. When the goods are bought or produced, the costs associated with such goods are capitalized as part of inventory (or stock) of goods. costs are treated as an expense in the period the business recognizes income from sale of the goods.
Determining costs requires keeping records of goods or materials purchased and any discounts on such purchase. In addition, if the goods are modified, the business must determine the costs incurred in modifying the goods. Such modification costs include labor, supplies or additional material, supervision, quality control, use of equipment, and other overhead costs. Principles for determining costs may be easily stated, but application in practice is often difficult due to a variety of consideration in the allocation of costs.
Cost of goods sold may also reflect adjustments. Among the potential adjustments are decline in value of the goods (i.e., lower market value than cost), obsolescence, damage, etc.
When multiple goods are bought or made, it may be necessary to identify which costs relate to which particular goods sold. This may be done using an identification convention, such as specific identification of the goods, first-in-first-out or average cost. Alternative systems may be used in some countries, such as last-in-first-out. gross profit method, retail method, or combinations of these.
Cost of goods sold may be the same or different for accounting and tax purposes, depending on the rules of the particular jurisdiction.

Importance of inventories
Inventories have a significant effect on profits. A business that makes or buys goods to sell must keep track of inventories of goods under all accounting and income tax rules.
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Cost of goods made by the business

The cost of goods produced in the business should include all costs of production .THE components of cost generally include:
• Parts, raw materials and supplies used,
• Labor, including associated costs such as payroll taxes and benefits, and
• Overhead of the business allocable to production.
Most businesses make more than one of a particular item. Thus, costs are incurred for multiple items rather than a particular item sold. Determining how much of each of these components to allocate to particular goods requires either tracking the particular costs or making some allocations of costs.
Labor costs include direct labor and indirect labor. Direct labor costs are the wages paid to those employees who spend all their time working directly on the product being manufactured. Indirect labor costs are the wages paid to other factory employees involved in production. Costs of payroll taxes and fringe benefits are generally included in labor costs, but may be treated as overhead costs. Labor costs may be allocated to an item or set of items based on timekeeping records.
Materials and labor may be allocated based on past experience, or standard costs. Where Determining overhead costs often involves making assumptions about what costs should be associated with production activities and what costs should be associated with other activities. Traditional cost accounting methods attempt to make these assumptions based on past experience and management judgment as to factual relationships. Activity based costing attempts to allocate costs based on those factors that drive the business to incur the costs.

CONCLUSION-:

Lastly We Conclude That ,
Cost of goods sold is the expense a company incurred in order to manufacture, create, or sell a product. It includes the purchase price of the raw material as well as the expenses of turning it into a product…