Cost of Goods Sold

Definition

Cost of Goods Sold is the cost of acquiring or manufacturing the products that a company sells during a period. Operation cost, tax and interest are excluded from cost of goods sold.

Why is it useful?

Cost of Goods Sold is one of the key fundamental indicator of business profitability. It can be used to determine your selling price, profit margin and assess financial risk.

Example of Use

When there is rise in cost of goods sold, businesses need to decide whether to increase selling prices to maintain profitability. Increasing selling price may maintain the profit margin but may cause loss of customers as the business loses price advantage against its competitors.

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