To determine the Cost of Goods Sold (COGS) from the provided information, we will follow a systematic approach. Let's break down the calculation step-by-step.
Step 1: Understand the Components
- Purchases: This is the total amount spent on acquiring goods for resale. In this case, it is N20,000.
- Carriage Inwards: This is the cost incurred to bring the goods to the business premises. It is considered part of the cost of goods sold. Here, it is N5,000.
- Opening Stock: This is the value of inventory that was available for sale at the beginning of the period. It is N10,000.
- Closing Stock: This is the value of inventory that remains unsold at the end of the period. It is N5,000.
Step 2: Calculate the Total Cost of Goods Available for Sale
To find the total cost of goods available for sale, we use the following formula:
[
\text{Total Cost of Goods Available for Sale} = \text{Opening Stock} + \text{Purchases} + \text{Carriage Inwards}
]
Substituting the values:
[
\text{Total Cost of Goods Available for Sale} = N10,000 + N20,000 + N5,000 = N35,000
]
Step 3: Calculate the Cost of Goods Sold (COGS)
Now, we can calculate the Cost of Goods Sold using the formula:
[
\text{COGS} = \text{Total Cost of Goods Available for Sale} - \text{Closing Stock}
]
Substituting the values we calculated:
[
\text{COGS} = N35,000 - N5,000 = N30,000
]
Conclusion
The Cost of Goods Sold (COGS) is
N30,000. Therefore, the correct option is
A. N30,000.
Explanation of Other Options
-
Option B (N25,000): This option is incorrect because it does not account for the total cost of goods available for sale correctly. It seems to ignore the carriage inwards and the opening stock.
-
Option C (N20,000): This option only considers the purchases and does not factor in the opening stock or carriage inwards, leading to an underestimation of the COGS.
-
Option D (N15,000): This option is significantly lower than the calculated COGS and does not reflect any of the costs associated with the goods sold, making it incorrect.
Common Pitfalls
- Ignoring Carriage Inwards: Some students may forget to include carriage inwards in the total cost of goods available for sale, which can lead to an incorrect COGS.
- Misunderstanding Closing Stock: It's crucial to remember that closing stock is subtracted from the total cost of goods available for sale to arrive at COGS.
- Confusing Carriage Inwards and Outwards: Carriage outwards is not included in COGS; it is treated as a selling expense.
Revision Summary
- COGS is calculated as: COGS = (Opening Stock + Purchases + Carriage Inwards) - Closing Stock.
- Always include carriage inwards in the calculation of total costs.
- Closing stock must be subtracted from the total cost of goods available for sale to find COGS.
- Be cautious of distinguishing between carriage inwards (included in COGS) and carriage outwards (not included in COGS).