Cost of Goods Sold for Propane

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At the end of each period (month), calculate what your Weighted Average Cost is for the total propane sales you sold during the period (month).

To do this, do the following.

1. Multiply your total propane inventory on hand at the first of the month (include bulk, trucks, and yard tanks) times the Weighted Average Cost for last month.

Note: If you don't know this Weighted Average Cost number or are just getting started, use an estimated Weighted Average Cost. 

2. For each propane purchase made during the month, multiply the gallons bought times the actual cost per gallon (the amount you paid).

3. Add up the total gallons (beginning inventory gallons plus all gallons purchased during the month).

4. Add up the extended dollar amounts (beginning inventory plus all purchases made during the month).

5. Divide this total extended dollar amount by the extended total gallons.

6. This number is your new Weighted Average Cost per gallon for the month.

7. Multiply this Weighted Average Cost by your total propane sales gallons for the month.

8. This is your total Cost of Goods Sold for propane for the month.  

Note: Left-click here

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COGS: Propane

Let's assume the following . . .

You started the month with a total of 10,000 gallons of propane on hand.

Your WAC (Weighted Average Cost) was 50 cents per gallon.

You made 2 propane purchases during the month. 

You had sales of 8,000 gallons during the month

 

In your General Ledger you have set up: 

A COGS account and an Inventory account for propane.

 

Here's what the calculations would look like:

Beginning inventory . . .10,000 gallons times $ .50 WAC = $ 5,000 extended cost

Purchase # 1. . . . . . . . . . 5,000 gallons times $ .60 WAC = $ 3,000 extended cost

Purchase # 2. . . . . . . . . . 3,000 gallons times $ .55 WAC = $ 1,650 extended cost

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18,000 total gallons = $9,650 total cost

 

New WAC per gallon for the current month = $ .536 ($ 9,650 divided by 18,000) 

Total Cost Of Goods for the month = $ 4,288 (8,000 gallons sold times $ .536 WAC)

Enter this Cost Of Goods Sold amount as a debit Journal Entry to your General Ledger Propane COGS account and a credit to the corresponding propane Inventory account.

for an example of how this works.

Also, if set up properly, the system will calculate and give you this same number on the Inventory Reconciliation Report.

 

9. When you've finished, print an Income Statement (report GL02 from General Ledger reports). If the COGS account for propane is zero, go to step 10 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 10.

10. Key in a Journal Entry for the total Cost of Goods amount as a debit against the appropriate COGS account for propane in your General Ledger and a credit to the corresponding Propane Inventory account.

Note: If you separate your propane costs by category (i.e. Commercial, Residential, and Agricultural, for instance), then you need to repeat this process for each of these categories. You will also need to have a corresponding COGS account and Inventory account for each category as well.

For further help regarding Cost Of Goods, go to:

Overview of Cost Of Goods Sold

Cost Of Goods Sold for Large Items

Cost Of Goods Sold for Small Items