Question

What is the formula for cost of goods sold for a merchandising or manufacturing company? How does this week's chapter on accounts payable and purchases play a role in this calculation?

The A/P clerk of a company writes the checks for vendors, and the controller signs the checks. The A/P clerk has devised a plan to give herself a raise. She creates a new vendor for her friend's business and creates two purchase orders for random car detailing services for $75 and $70. She writes the checks to pay these new vendors knowing the controller will only pay close attention to checks over $100. She delivers the checks to her friend to deposit in his bank account, and then he writes her a personal check for the full amount of $145.

Answer 1

Solution:

Formula of cost of goods sold for a merchandising company = Beginning inventory + Purchases - Ending inventory

Formula of cost of goods sold for a manufacturing company = Beginning inventory + Cost of goods manufactured - Ending inventory

Therefore purchase of merchandise used in computation of cost of goods sold, therefore chapter on accounts payable and purchases play a role in this calculation.

Note: second question could not be answered as requirement is missing.