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 reflects the purchases and does not consider 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 components correctly. It likely results from a misunderstanding of how to calculate COGS.
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 Opening and Closing Stock: Confusing opening stock with closing stock can lead to significant errors in the calculation.
- Not Following the Formula: It’s crucial to follow the correct formulas step-by-step to avoid mistakes.
Revision Summary
- COGS is calculated as: COGS = (Opening Stock + Purchases + Carriage Inwards) - Closing Stock.
- Always include carriage inwards as part of the cost of goods sold.
- Ensure to differentiate between opening stock (beginning inventory) and closing stock (ending inventory).
- The correct answer for the given problem is N30,000 (Option A).