To determine the Cost of Goods Sold (COGS) using the provided information, we will follow a systematic approach.
Step-by-Step Calculation of Cost of Goods Sold (COGS)
-
Understand the Formula for COGS:
The formula to calculate the Cost of Goods Sold is:
[
\text{COGS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}
]
-
Identify the Values from the Information Provided:
- Opening Stock = 10,000
- Purchases = 100,000
-
Closing Stock = 20,000
-
Substitute the Values into the Formula:
Now, we will substitute the identified values into the COGS formula:
[
\text{COGS} = 10,000 + 100,000 - 20,000
]
-
Perform the Calculation:
- First, add the Opening Stock and Purchases:
[
10,000 + 100,000 = 110,000
]
-
Next, subtract the Closing Stock from this total:
[
110,000 - 20,000 = 90,000
]
-
Final Result:
Therefore, the Cost of Goods Sold (COGS) is 90,000.
Conclusion
The correct answer is
C. Le 90,000.
Explanation of Why Other Options are Incorrect
- Option A: Le 120,000:
-
This option incorrectly assumes that COGS is simply the total sales figure. COGS is not equal to sales; it reflects the cost incurred to produce or purchase the goods sold during the period.
-
Option B: Le 110,000:
-
This option represents the total of Opening Stock and Purchases without accounting for the Closing Stock. It fails to recognize that the Closing Stock must be deducted from the total to arrive at the actual cost of goods sold.
-
Option D: Le 30,000:
- This option does not follow the COGS formula at all. It seems to be a random figure and does not relate to any of the provided data.
Common Pitfalls
- Confusing COGS with Sales: Remember that COGS is about the cost of inventory sold, not the revenue generated from sales.
- Neglecting Closing Stock: Always remember to deduct the Closing Stock from the total of Opening Stock and Purchases to avoid inflating the COGS.
Revision Summary
- COGS is calculated using the formula: Opening Stock + Purchases - Closing Stock.
- Always ensure to account for Closing Stock to avoid miscalculating COGS.
- The correct COGS in this scenario is Le 90,000.
- Understand the distinction between COGS and sales revenue to avoid common mistakes.