Adjusted Cost of Goods Sold
Cost of Goods Sold before Adjustments is called normal or usual or unadjusted Cost of Goods Sold or Cost of Sales while adjusted cost of goods sold is created after making adjustments to this normal cost
of goods sold because of variances occurred during the production process or inventory adjustment that affected the value of Cost of Goods Sold during the accounting cycle. These variances occurred in the form of changes in production and variable costs that ultimately cause changes in total actual overhead costs or manufactured costs. If the actual manufactured
cost is more than allocated manufactured cost than the variance is added to unadjusted cost of goods sold and if it is less than allocated manufactured cost, then it is deducted from normal cost of goods sold as we added more
allocated cost to the normal cost of goods sold than the actual one.
Adjusted Cost of Goods Sold Formula
Following Formula is used to calculate Adjusted Cost of Goods Sold:
Rs.
Opening Inventory XXX
Add: Purchases XXX
Cost of Goods Available for Sale XXX
Less: Closing Inventory XXX
Unadjusted Cost of Goods Sold XXX
Add /Less: Variances XXX
_______
Adjusted Cost of Goods Sold XXX
_______
_______
It is to be noted that, after considering the above formula, you can also calculate the value of Unadjusted Cost of Goods Sold for the period.
Inventory Adjustment Cost of Goods Sold
Due to the error made in the recording of Inventory also affects the value of cost of goods sold. If we record less amount of inventory than the actual value, then cost of goods sold (COGS) decreases, but if we record
higher value, then it increases.
If Cost of Goods Decreases as we add lesser amount, then:
Cost of Sales + Understated Value of Inventory
but, if we overstated Cost of Goods Sold, then we do the following:
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