The formula for cost of goods sold is cost of goods sold = direct costs + selling and distribution expenses.
Calculation of Cost of Goods Sold:
Calculation of Cost of Goods Sold can vary depending on the business model of the organization, the type of product and the sales strategy. Accurate calculation of cost of goods sold is important for pricing strategy, profitability analysis and decision making. By controlling the cost of goods sold, companies can improve profitability, optimize resource allocation, and better meet customer needs.
Direct Costs:
Direct costs are costs that are directly related to producing a specific product or providing a service. These costs can usually be traced directly to a specific product or service. They mainly include the following: raw material costs: these include the costs of the raw materials used in the production of a product, such as the cost of purchasing raw materials and processing costs. Labor costs: include wages, benefits, bonuses, etc. for people directly involved in the manufacture of a product or the provision of a service.
Selling and Distribution Costs:
Selling and distribution costs are the costs associated with selling products to customers and distributing products to the market. These costs may not be directly allocable to a specific product, but they are incurred to sell the product and therefore should also be included in the cost of goods sold.
Factors affecting cost of goods sold:
I. Product type and complexity:
Different types of products and services have different manufacturing and distribution processes, and therefore their cost of goods sold will vary. Complex products may require more raw materials, labor and manufacturing costs.
II. Scale of production:
The size of production affects the amount of raw materials purchased, the utilization of production equipment, and the cost of labor. Generally speaking, large-scale production can share costs and reduce the cost of sales per unit of product.
Three, production efficiency:
The efficiency of the production process has a direct impact on the cost of goods sold. Improve production efficiency can reduce manufacturing costs, which affects the final cost of goods sold.
Four, supply chain management:
The management and efficiency of the supply chain will affect the cost of raw material procurement and transportation costs. Optimizing the supply chain can reduce the cost of goods sold.
V. Sales channels and distribution strategies:
Different sales channels and distribution strategies may lead to different cost of sales. For example, direct sales and distribution channels may have different cost structures.