Inventory costs are a major component of a company’s balance sheet and income statement. Knowing how to accurately calculate inventory cost per unit is essential for calculating the total cost of goods sold and net income. This article will explain the process of calculating inventoriable costs and the per-unit cost calculation.
Calculating Inventoriable Costs
Inventory cost is the total cost of goods that a company owns and has stored in its warehouse or inventory. To calculate the cost of inventory, add the cost of goods purchased (COGP) to the cost of goods manufactured (COGM). COGP includes the cost of materials, labor, and other related expenses such as shipping and handling. COGM includes the cost of materials, labor, and overhead expenses such as rent, utilities, and insurance.
The total inventory cost is then divided by the number of units in the inventory to calculate the cost of each unit. The cost of each unit is then multiplied by the number of units sold to calculate the cost of goods sold (COGS).
Per Unit Calculation
To calculate the cost of each unit, start by determining the total cost of goods purchased and manufactured. This includes the cost of materials, labor, and other related expenses. Next, add the total cost of goods purchased to the total cost of goods manufactured. This total is the total cost of inventories.
Finally, divide the total cost of inventories by the total number of units in the inventory. This will give you the cost per unit. To calculate the cost of goods sold, multiply the cost per unit by the number of units sold. This will give you the total cost of goods sold.
In conclusion, calculating inventoriable costs and the cost per unit is essential for accurately calculating the cost of goods sold and net income. By following the steps outlined in this article, you will be able to accurately calculate the cost of goods sold and net income.
