Cost of Goods Available for Sale

What is the Cost of Goods Available for Sale?

The cost of goods available for sale refers to the cost of total goods produced during the year after accounting for the cost of finished goods inventoryFinished Goods InventoryFinished goods inventory refers to the final products acquired from the manufacturing process or through merchandise. It is the end product of the company, which is ready to be sold in the market. read more at the beginning of the year and is available for sale to the end-users.

Calculation of Cost of Goods Available for Sale

It includes all the manufacturing costs related to the production of the final inventory, including the material, labor, and overhead expenses, as well as the cost of finished inventory in hand at the beginning of the period. However, this does not include the cost related to selling and distribution of the goods for the reason it is the cost of the total inventory available for sale and not the total cost of sale of the product.

Thus, the calculation can be arrived by preparing a cost sheet, as shown below:

Cost Sheet

For the Period Ending…

ParticularsUS $
Particulars US $
Direct Material Consumedaxx
Direct Labor Costbxx
Direct Overhead Expensescxx
Prime Costd=xx
Factory Overheadexx
Gross Factory Costf=d+exx
Stock in Process at the Beginninggxx
Stock in Process at the Endhxx
Net Factory Costi=f+g-hxx
Office and Administration Overheadjxx
Cost of Productionk=i+jxx
Finished good inventory at the Beginninglxx
Cost of Goods Available for Salem=k+lxx
Finished good inventory at the Endnxx
Cost of Goods Soldo=m+nxx
Selling and Distribution Expensespxx
Cost of Salesq=o+pxx
Profit Marginrxx
SalesSxx

Cost of Goods Available for Sale Formula

Cost of Goods Available for Sale Formula = Cost of Goods Produced During the Year + Cost of Finished Goods Inventory at the beginning of the Year
Cost-of-Goods-Available-for-Sale

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Source: Cost of Goods Available for Sale (wallstreetmojo.com)

Example

XYZ Inc. manufactured 2000 units of its product during the year. The total production cost of producing the 2000 units of output was the US $ 10,000. The Company also had 100 units of inventory at the beginning of the year worth the US $ 800. It paid the US $ 250 towards the distribution of its product and left with the ending inventoryEnding InventoryThe ending inventory formula computes the total value of finished products remaining in stock at the end of an accounting period for sale. It is evaluated by deducting the cost of goods sold from the total of beginning inventory and purchases.read more of US $ 600 at the end of the year. What will be the cost of goods available for sale?

In this case, there will be

Example 1-1

Remember, we will not account for the cost of selling the goods and the cost of inventory at the end as we are computing the total cost attributable to the salable product in hand, not the cost of the product sold.

Let’s take another example.

Suppose XYZ Inc. produced 1000 chocolate boxes for a total production cost of US $ 4000. The Company had 75 boxes with it as inventory worth the US $ 360 at the beginning of the year.

In this case, there will be

Example 1-2

Again, we will not account for the cost of promotion and the cost of inventory at the end as we are calculating the total cost attributable to the salable product in hand, not the cost of the product sold. Also, the cost of freight inward is a part of production cost as it is the transportation cost of bringing the material to the factory place, hence it is a part of overhead expenses.

Conclusion

Cost of Goods Available for Sale is the total production expense of the final output available for sale. It accounts for the cost of inventory in hand at the beginning of the period and excludes the cost of selling and distribution and the cost of inventory left at the end of the period.

This has been a guide to What is the Cost of Goods Available for Sale & its Definition. Here we discuss its formula along with step by step calculations and examples. You can learn more about from the following accounting articles –

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