How Cost of Goods sale calculated?

[Naomi5]

Hi,

I have 2 main questions:

1 - What is standard cost? And what is it for?

2 - How is inventory on hand value calcuated? Through COGS or COGS + Freight?

We're s small/medium business that's going through a clean up of our inventory. We have a lot of products and probably should be under the Pertetual inventory but at the moment we have no idea what type of inventoy system we're currently using. We purchase parts overseas, products arrived in container. We got charge for Freight as a whole container, not included with the product.

The situation is, product purchase price was never entered in MYOB. And now we're trying to generate P&L statement, we're unsure if Value of Stock on hand has been calcualted with averge price? standard cost? COGS + Freight, or only COGS and Freight is an account by itself.

On another note, all our product had been recorded with ticks on "I buy/sell this item" AND "I iventory this item". Would this affect the calculations and price/value allocation of COGS?

And what can we do to correct the inventory in order to generate the P&L correctly?

Any advise or guidance on this case would be much appreciated.

Thank you kindly.

[brunob]

Hi @Naomi5 

Thanks for your questions, we know how important is to get your inventory right, and sometimes planning a bit ahead make its implementation much easier.

Standard cost (in Accountright) or Buying Price (in MYOB Business), is the price that will appears on a purchase order or bill when you are keying that product/item. More info here. Note: you can overide that price on the purchase order/bill if needed.

We using Accountright or MYOB Business (perpetual inventory system) your inventory's monetary value is tracked using the average costing method, using the formula: average Cost = Total Value of the item ÷ Total Quantity of items. The example below explains how the average cost and total value of a bottle of beer was calculated overtime

Purchase 10 x beer @ $2
Total Value: $20
Average Cost : $2 (= $20 / 10 units)

Purchase 10 x beer @ $3
Total Value: $30

Average Cost : $2,50 (= $50 / 20 units)

More information about on hand value and average cost here. 

If you buy items overseas, we recommend calculating its landed cost (the total cost of an imported shipment ie the purcahse price of the item + freight + insurance etc). This article here explains how to accurately calculate landed cost.

COGS will be automatically calculated when the item is sold, as far as your item has both "I track stock for this item" and "Sell this item" ticked (we you have accurately record the item's buying price).

Finally, if your average cost is incorrect for some reason, we recommend using the adjust inventory feature to correct your figures (please seek advise with an accountant if you are unsure on how to balance your stock value). You can find some more information here.

Regards,

Bruno and the Inventory team