Answer & Solution
Answer: Option
B
Solution:
Here's the simple formula to calculate COGS:
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock
Let's break down each part using the numbers from your question:
1. Opening Stock: This is the value of goods you already had at the *beginning* of the period.
In our question, Opening Stock = Rs. 5,000.
2. Purchases: This is the value of new goods you *bought* during the period.
In our question, Purchases = Rs. 15,000.
3. Direct Expenses: These are any additional costs directly related to bringing the goods to your business and getting them ready for sale (like shipping costs, customs duty, etc.).
In our question, Direct Expenses = Rs. 2,000.
If you add these three together (Opening Stock + Purchases + Direct Expenses), you get the "Cost of Goods Available for Sale". This is the total cost of all the goods you *could have sold*.
Cost of Goods Available for Sale = Rs. 5,000 + Rs. 15,000 + Rs. 2,000 = Rs. 22,000.
4. Closing Stock: This is the value of goods that were *not sold* and are still left at the *end* of the period.
In our question, Closing Stock = Rs. 2,500.
Now, to find the Cost of Goods Sold, you simply take the total goods you *could have sold* and subtract the goods you *didn't sell* (the closing stock).
Cost of Goods Sold (COGS) = Cost of Goods Available for Sale - Closing Stock
COGS = Rs. 22,000 - Rs. 2,500
COGS = Rs. 19,500
So, the cost of goods sold is Rs. 19,500.
This matches Option B.
