Cost of Goods Sold for Small Items

At the end of each period (month), calculate the Cost Of Goods Sold for those items under $100 (such as fittings or black pipe). There may well be many different costs for this kind of item. However, it is common practice that a consistent markup is used.

If this is the case, use the following method for calculating Cost of Goods Sold:

1. For each small item category, find the dollar amount sold during the month from the Sales Summary.  

2. Determine the markup used for each category.  

3. Divide the dollar amount by the markup.

4. This is the Cost Of Goods Sold for each item.  

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COGS: Small Items

Let's assume the following . . .

You have 2 categories of small items - fittings and black pipe:

During the month you sold $4,500 worth of fittings

The markup for fittings is 50%

During the month you sold $3,000 worth of black pipe.

The markup for black pipe is 200% 

 

In your General Ledger you have set up:

• A COGS account and an Inventory account for fittings.
• A COGS account and an Inventory account for black pipe.

 

Here's what the calculations would look like:

Cost of Goods for fittings for the month = $3,000 ($ 4,500 divided by 1.50)

Note: To determine the divisor add 1.00 to the markup percent (i.e. .50 + 1.00 = 1.50)

Cost of Goods for black pipe for the month = $1,000 ($ 3,000 divided by 3.00)

Note: To determine the divisor add 1.00 to the markup percent (i.e. 2.00 + 1.00 = 3.00)

Enter each of these Cost Of Goods Sold amounts as debit Journal Entries to the appropriate General Ledger COGS accounts and as credits to the corresponding fitting and black pipe Inventory accounts.

for an example of how this works.

5. When you've finished, print an Income Statement (report GL02 from General Ledger reports). If the COGS account for each small item is zero, go to step 6 below. If it is not zero and there is a dollar amount in the COGS account, adjust (subtract) this amount from the Cost Of Goods Sold amount calculated above. Then go to step 6.

6. Key in a Journal Entry for the Cost of Goods amount as a debit against the appropriate COGS account for each small item category in your General Ledger and a credit to the corresponding Inventory account.

For further help regarding Cost Of Goods, go to:

Overview of Cost Of Goods Sold

Cost Of Goods Sold for Propane

Cost Of Goods Sold for Large Items