Projected cost of goods sold is just estimation and it is not on the basis of actual data. It is calculated for making better business plan and to minimize it. We know that when we calculate actual cost of goods sold, we can not decrease it because we can not change our history but we can change our future. So, to calculate projected cost of goods sold can help us in this.
Read on following steps to find out how.
Actual cost of goods sold is
= Actual opening stock + Actual Net Purchase + Actual Direct Expenses - Actual Closing Stock
And
Actual Gross Profit is
= Actual Sale - Actual Cost of Goods Sold
Now, we can calculate Gross Profit % on sale
= Gross Profit / Sale X 100
Now, this Gross Profit % will help us to calculate the projected cost of goods sold.
For example, we have to calculate next year projected cost of goods sold when we have estimated next year sales. So, following formula will apply
Projected Cost of Goods Sold = Estimated Sales - Estimated Gross Profit
Estimated Gross Profit = Estimated Sales X Gross Profit %
In advance way, we go more deep than simple way and for calculating projected cost of goods sold, we calculate following.
1. Determine Projected Beginning Inventory Value
We know that actual ending inventory value of previous year will become the beginning inventory. If you have good plan of consumption of this year, you can find the next year beginning inventory. For example, you can estimate next year's beginning inventory value as $ 30,000
2. Add the Value of All Projected Inventory Purchase
Purchase department will have all the record of past purchases, purchase return. Net projected purchase can be calculated on past purchases and expectation of new sale. You can estimate it as $ 20,000.
3. Add Projected Direct Expenses
Whether you are operating retail business or manufacturing, you will have lots of expenses which are related to purchase and manufacturing like direct labor cost, cost of freight, carriage inward etc. These expenses are effected from market condition. For example, India, I am seeing from past many years, labor cost increases only Rs. 50 every year in their per day wage. For example, in 2011, per day wages was Rs. 200. In 2012, per day wages was Rs. 250 and in 2013, per day wage is Rs. 300 and it is sure, in 2014, it will be Rs. 350 per day. Like my country's estimation, you can calculate your country's estimated rates of direct expenses. On this basis, you can calculate the total cost of projected direct expenses. For example, you can estimate it as $ 15000
4. Deduct Projected Ending Inventory Value
To calculate the projected ending inventory's value is based on this year's closing stock's value. Closing stock's value is calculated on the basis of quantity of stock which is unsold and per unit cost. Per unit cost is calculated on the inventory method. If we will use FIFO, per unit cost will be different. If we will use LIFO, per unit cost will be different. For next year's projected ending inventory value will be based on the current year's closing stock's quantity, future sale quantity expectation and future using of inventory valuation method. For example, our projected ending inventory value is $ 30,000.
So, Projected Cost of Goods Sold =
Projected Beginning Inventory Value + All Projected Inventory Purchase + Projected Direct Expenses - Projected Ending Inventory Value
= $ 30,000 + $ 20,000 + $ 15000 - $ 30,000 = $ 35000
Following is the performa for calculating of projected cost of goods sold of a manufacturing company.
Read on following steps to find out how.
Simple Way
Actual cost of goods sold is
= Actual opening stock + Actual Net Purchase + Actual Direct Expenses - Actual Closing Stock
And
Actual Gross Profit is
= Actual Sale - Actual Cost of Goods Sold
Now, we can calculate Gross Profit % on sale
= Gross Profit / Sale X 100
Now, this Gross Profit % will help us to calculate the projected cost of goods sold.
For example, we have to calculate next year projected cost of goods sold when we have estimated next year sales. So, following formula will apply
Projected Cost of Goods Sold = Estimated Sales - Estimated Gross Profit
Estimated Gross Profit = Estimated Sales X Gross Profit %
Advance Way
In advance way, we go more deep than simple way and for calculating projected cost of goods sold, we calculate following.
1. Determine Projected Beginning Inventory Value
We know that actual ending inventory value of previous year will become the beginning inventory. If you have good plan of consumption of this year, you can find the next year beginning inventory. For example, you can estimate next year's beginning inventory value as $ 30,000
2. Add the Value of All Projected Inventory Purchase
Purchase department will have all the record of past purchases, purchase return. Net projected purchase can be calculated on past purchases and expectation of new sale. You can estimate it as $ 20,000.
3. Add Projected Direct Expenses
Whether you are operating retail business or manufacturing, you will have lots of expenses which are related to purchase and manufacturing like direct labor cost, cost of freight, carriage inward etc. These expenses are effected from market condition. For example, India, I am seeing from past many years, labor cost increases only Rs. 50 every year in their per day wage. For example, in 2011, per day wages was Rs. 200. In 2012, per day wages was Rs. 250 and in 2013, per day wage is Rs. 300 and it is sure, in 2014, it will be Rs. 350 per day. Like my country's estimation, you can calculate your country's estimated rates of direct expenses. On this basis, you can calculate the total cost of projected direct expenses. For example, you can estimate it as $ 15000
4. Deduct Projected Ending Inventory Value
To calculate the projected ending inventory's value is based on this year's closing stock's value. Closing stock's value is calculated on the basis of quantity of stock which is unsold and per unit cost. Per unit cost is calculated on the inventory method. If we will use FIFO, per unit cost will be different. If we will use LIFO, per unit cost will be different. For next year's projected ending inventory value will be based on the current year's closing stock's quantity, future sale quantity expectation and future using of inventory valuation method. For example, our projected ending inventory value is $ 30,000.
So, Projected Cost of Goods Sold =
Projected Beginning Inventory Value + All Projected Inventory Purchase + Projected Direct Expenses - Projected Ending Inventory Value
= $ 30,000 + $ 20,000 + $ 15000 - $ 30,000 = $ 35000
Following is the performa for calculating of projected cost of goods sold of a manufacturing company.
Projected Direct Material
|
||
| Estimated Raw Material Inventory | XXXXX | |
| Add : Purchase of Raw Material (Estimated) | XXXXX | |
| Deduct : Ending Raw Material (Estimated ) | XXXXX | |
| Total Projected Direct Material Cost | XXXXX | |
Projected Direct Labor Cost
|
||
| Estimation of Direct labor cost | XXXXX | |
| Total Projected Direct Labor Cost | XXXXX | |
| Projected Manufacturing Overhead | ||
| Indirect Labor (Estimated) | XXXXX | |
| Factory Utilities (Estimated) | XXXXX | |
| Direct Supplies (Estimated) | XXXXX | |
| Factory Depreciation (Estimated) | XXXXX | |
| Factory Property Texes (Estimated) | XXXXX | |
| Factory Insurance (Estimated) | XXXXX | |
| Total Projected Manufacturing Overhead | XXXXX | |
| + Beginning Work in Process Inventory (Estimated) | + XXXXX | |
| - Ending Work in Process Inventory (Estimated) | - XXXXX | |
| + Finished stock at beginning (Estimated) | + XXXXX | |
| - Finished Stock at Ending (Estimated) | - XXXXX | |
| Projected Cost of Goods Sold | XXXXX |
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