Week 5

• Cost of Goods Sold (COGS)


  Refers to the direct costs incurred in producing goods or services sold by a business
• Why do we need merchandise inventory to calculate COGS

  • It represents the goods available for sale during a given period
  • Helps determine a company's profitability and is a key part of financial statements
• COGS formula

  Beginning inventory + purchases - ending inventory
• Beginning inventory 


  • Represents unsold goods from the previous period
  • Part of the total goods available for sale
• Purchases


  • Includes new inventory bought during the period
  • Added to beginning inventory to calculate total inventory available
• Ending Inventory 


  • Represents remaining unsold goods at the end of the period
  • Subtracted from total inventory available to determine the cost of goods actually sold
• Why is this important

  • It determines gross profit
  • Revenue - COGS = gross profit
  • A higher COGS means lower profits, so managing inventory efficiency is key
• Freight-in


  The amount paid transport goods or merchandise purchase from the supplier to the buyer