***z-above-h1.shtml***
Cost
of Goods
Sold Report
The cost of goods sold report or (COGS), is important because
it along with the contribution margin gives a snapshot of
profitability. This profit is before the company's
administrative
costs are added.
An
overall report for the entire company would look something like this:
| Sales |
|
12,000 |
| Beginning
Inventory |
10,000 |
|
| Material
Purchases |
2,500 |
|
| Direct
Labor |
1,200 |
|
| Burden
Costs |
2,400 |
|
| Ending
Inventory |
8,000 |
|
| COGS |
8,100 |
-8,100 |
| Contribution
Margin |
|
3,900 |
COGS is beginning inventory + purchases + labor + burden -
ending inventory.
This
report is usually a monthly report and should be available in the
computer system.This company is showing a healthy
contribution
margin.
|
Parts Sold |
Sales |
Direct Labor Cost |
Material Cost |
Burden Cost |
Total COGS |
Contribution Margin |
% |
| Part #1 |
100 |
$8000 |
$800 |
$3000 |
$3800 |
$7600 |
$400 |
5% |
| Part #2 |
700 |
$1500 |
$150 |
$750 |
$1125 |
$2025 |
-$525 |
-35% |
| Part #3 |
50 |
$2500 |
$250 |
$800 |
$1000 |
$2050 |
$450 |
18% |
This
is a very good report if:
- The
burden allocations
are fair and reasonable.
- Too many times individual parts will be
unjustly tagged as big losers
when the burden allocation rates are not accurate.
- The material and labor inputs are up-to-date
and accurate.
How
to read the report:
The
costs are at standard, that is, what the part should be using for
costs.If your cost system is accurate and up-to-date then
the
report is good.
You can see that part 2 has a negative
contribution. This needs to be investigated to find out why.
Is the burden allocated properly? Is the sales
pricing
accurate? Material?
Maybe it's a bad job and wasn't priced well when the job was taken.
Contribution
margin needs to allow room:
- Contribution margin should be large enough to:
- Cover administrative costs
- Provide the profit desired