What Is Gross Cost of Merchandise Sold?
Gross cost of merchandise sold, also known as cost of goods sold (COGS), is a measure of the total cost of acquiring the merchandise that a company has sold during a given period. This figure is used to calculate the company’s profit or loss and is a key component of the income statement. Gross cost of merchandise sold includes all the costs associated with buying and producing the merchandise that the company has sold. This includes the cost of raw materials, labor, and manufacturing overhead. It also includes the cost of shipping and any other related expenses.
Examples of Gross Cost of Merchandise Sold
For example, a clothing retailer will include the cost of fabric, buttons, thread, and any other materials used in making the clothing in the cost of goods sold. It will also include the cost of labor to sew the clothing, as well as the cost of shipping it to the store. A restaurant will include the cost of ingredients, such as vegetables, spices, and meats, in the cost of goods sold. It will also include the cost of labor to prepare the food as well as any shipping costs associated with the ingredients.
How Is Gross Cost of Merchandise Sold Calculated?
The formula for calculating gross cost of merchandise sold is as follows:
- Beginning Inventory + Net Purchases + Manufacturing Costs = Cost of Goods Available for Sale
- Cost of Goods Available for Sale – Ending Inventory = Cost of Goods Sold
The beginning inventory is the amount of merchandise the company had on hand at the beginning of the period. The net purchases are the amount of merchandise the company purchased during the period. The manufacturing costs are the costs associated with producing the merchandise. The cost of goods available for sale is then calculated by adding the beginning inventory, net purchases, and manufacturing costs. The ending inventory is the amount of merchandise left over at the end of the period. The cost of goods sold is then calculated by subtracting the ending inventory from the cost of goods available for sale. Gross cost of merchandise sold is a key metric for determining a company’s profitability. It helps to indicate how much money the company has spent on goods that have been sold, and can give a better indication of the company’s true profitability.
Conclusion
Gross cost of merchandise sold is an important figure for any business to consider when calculating their overall profitability. It includes all the costs associated with purchasing and producing the goods that have been sold during a given period. By calculating this figure, companies can get a better understanding of their true profitability.
References
[1] Cost of Goods Sold [2] Inventory [3] Profit (Accounting)