THE FINANCIAL STATEMENTS
KEY FINANCIAL INDICATORS
ACCOUNTING ISSUES
WHAT-IF ... SENSITIVITY MODELS
TIMING MATTERS
JUSTIFYING INVESTMENT
SCORECARDS AND VALUE MANAGEMENT

Cost of Sales

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Taking into account stock

For both variable and absorption costing, stock must be taken into account. There are 3 basic types of stock:

  • raw materials
  • work-in-progress or WiP (pronounced ‘whip’, though there is some debate on the correct pronunciation of this word too: see video below)
  • finished goods

For each figure, you would need to take the difference between the values at the beginning of the year and the end of the year to calculate how much has been used and should be allocated to COGS. So with raw materials, the stock usage would be:

stock balance at beginning of year + raw materials purchased – stock balance at end of year