I do not know if this is the best example, but I am confused by how the COGS are calculated . I see the 2 different ways noted on the image I attached (screenshot attached) but why is only part of the fixed costs including in the first part?

I also thought COGS had to be figured out by knowing cost of beg inventory + cost of purchases - cost of ending inventory ?

And speaking of ending inventory, does that mean if a company produced 100 items, for example, but they only sold 80, does that mean there will be 20 left in ending inventory? I still get confused by that stuff from Chapter 3 process costing i believe.

Thank you

Albert Pernelli, a well-known consultant, was hired to "turn around" Inlet Steel Plate. In the year prior to his arrival, the company produced and sold 60,000 tons of steel plate for $800 per ton. The company has $20,000,000 of fixed manufacturing costs and $400 per ton of variable manufacturing costs. Selling and administrative costs are essentially fixed and amount to $9,000,000. At the end of the year, the company had a loss of $5,000,000, as follows: Sales (60,000 tons * $800) $48,000,000 Less cost of goods sold ($20,000,000 fixed + ($400 x 60,000 tons)) 44,000,000 Gross margin 4,000,000 Less selling and administrative costs 9,000,000 Net loss ($ 5,000,000) Upon arriving at Inlet Steel Plate, Albert noted that the company was operating substantially below capacity due to a weak market for steel plate. He decided that the company had to take advantage of its capacity and ordered the company to increase production of steel plate to 90,000 tons. He also cut advertising and laid off white-collar workers, saving the company $2,000,000. Although sales remained at 60,000 tons, profit went from a loss of $5 million to a gain of $3,666,667! Albert received a large fee and added to his reputation as a "turnaround genius. REQUIRED a. Assuming no changes in price or the company's cost structure, show the calculation of income under Albert's "leadership." b. How much fixed cost is buried in ending inventory? C. Did Albert really create value for the company? ANSWER a. Calculation of unit cost of production Fixed cost $20,000,000 Variable costs ($400 x 90,000 tons) 36,000,000 Total $56,000,000 Number of tons + 90,000 Cost per ton $ 622.2222 per ton Calculation of net income: Sales (60,000 tons x $800) $48,000,000 Less cost of goods sold ($622.2222 x 60,000 tons) $37,333,332 Gross margin 10,666,668 Less selling and administrative costs 7,000,000 Net income $ 3,666,668 b. Fixed cost buried in ending inventory