A manufacturing firm's cost of goods manufactured is equivalent to a merchandising firm's cost of goods purchased.
Explanation:
While a merchandising company buys goods from its supplier's goods purchased and adds this to its opening inventory to determine the number of goods it has available for sale goods available for sale, a manufacturing firm makes the goods to be sold goods manufactured and adds to its opening inventory of finished goods to determine the same metric quantity of goods available for sale.
This relationship can be seen when the trading account of both firms is compared.
The cost of goods purchased is the net cost of merchandise acquired. The calculation is to add freight into the initial purchase cost and then subtract purchase allowances, purchase discounts, and purchase returns.
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