Cost of Goods Available for Sale

Cost of Goods Available for Sale

What is Cost of Goods Available for Sale?

Definition

The cost of goods available for sale tells you the cost of the finished goods that a company can sell to its customers. This sum includes the cost of inventory at the beginning of the period under consideration as well as the cost of the finished goods acquired from suppliers.

For a company that manufactures the goods that it sells, the cost of goods available for sale will be calculated by including the value of finished goods produced during the period.

What does cost of goods available for sale mean?

The cost of goods available for sale can be calculated in the following manner:

⇨ Determine the value of the inventory at the beginning of the accounting period

⇨ Add the cost of goods purchased. In the case of a company that manufactures goods, add the value of the goods made during the period.

The total that you get will give you the value of the goods that you can sell.

When you are calculating the cost of goods available for sale, there are several points that you must remember. Firstly, if you had returned any of the merchandise that had been purchased, the cost of goods available for sale figure must be reduced by the relevant amount. Any discount received from the supplier must also be subtracted from the cost of goods available for sale figure.

Shipping charges should be added. These expenses will go towards increasing the cost of goods available for sale figure.

Example of cost of goods available for sale

Moda Fashions, a clothing retailer, has an inventory of $45,000 at the beginning of the January to March quarter of 2018. During this period, it buys goods worth $100,000 and incurs freight expenses of $3,000.

The company’s cost of goods available for sale can be calculated by adding these three sums. Moda Fashions cost of goods available for sale is $148,000 ($45,000 + $100,000 + $3,000).

Summary

Calculating the correct figure for the cost of goods available for sale is essential because this sum has an impact in determining the company’s income for the relevant accounting period.