Cost of goods sold is one of the biggest expenses of a business. So what is the cost of goods sold and how to calculate the cost of goods sold is the most accurate?

What is cost of goods sold

?Cost of goods sold is simply understood as the total cost to create a product. It is related to the sales process including cost of goods sold, selling expenses, and administrative expenses. The formation of cost of goods sold is distinguished at different stages in the production process such as:

Cost of goods sold at the point of purchase, also known as actual purchase value. Insurance, VAT, shipping fees, etc. For manufacturing companies, the total cost will be more because the input is only raw materials to create finished products.

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Cost of goods sold also changes depending on the provisions of the contract with the supplier. Because some suppliers will add fees such as shipping, taxes, insurance, etc. to the selling price.

How to calculate cost of goods sold

Each business is different, so the cost of goods sold is also different. To accurately calculate the cost of goods sold, it is necessary to go into details of each type of business.

Manufacturing and trading enterprises

The finished product of the enterprise is formed through the production process. Through each stage in the production process, the cost of goods sold is added with the costs of living labor and materialized labor, which can be mentioned as:

The actual purchase price of raw materials includes shipping, labor, wastage, and many other monetary costs. Inoculated shipping costs include warehousing and production fees at the next distribution stage of the product. .The price of the finished product is all costs at the end of the production process. It includes costs from the inventory holding the beginning of the period and the production during the period.

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Service trade enterprise

The goods of the manufacturing enterprise are the finished products of the trading and service enterprises. The operation of a commercial service enterprise is the final task of the process of goods circulation.

Therefore, the calculation of COGS of a trading service enterprise is somewhat simpler than that of a manufacturing enterprise. All new costs when goods are warehoused are included in the finished product price. When consuming goods, a part of the cost will be included in accordance with the enterprise’s regulations.

Cost of goods sold is one of the largest expenses in the production process of a business. Therefore, businesses need to master the factors that form the cost of capital in order to have the strictest and most effective management.

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