The cost of goods sold is the label given to the actual costs incurred during the production of a certain product. It refers to the total amount of money spent to produce an item in relation to the amount of money that is earned from the sale of the same item.
In any marketing enterprise, it is essential to keep track of the monies at every stage of the process. Selling an item on Amazon is not simply about putting an item in the catalog and then waiting for the sales to happen. You need to keep careful track of all expenses and income.
Understanding the costs, expenses, and income means you will not only be able to keep track of sales but also be able to make educated sales projections and work out exactly how much your profit is.
One essential piece of information you need to understand is exactly how much it costs you to produce your goods wholesale.
Cost of goods sold includes every single amount of money spent on anything to do with producing an item or that can be listed on something like the Amazon catalog.
The details of these expenses vary from product to product but can include expenses such as the raw materials from which something is made; the cost of purchasing a product for resale, or which may be refunctioned; packaging, and presentation.
The production of any goods needs something to be done with the raw materials, or an existing item to refunction it for sale. This involves labor, which must also be included in the cost of sales.
There are some intangible costs that facilitate the process of producing the goods, but which are not identifiable costs. These include overheads and marketing. These are not included in the cost of goods sold.
The amount that is spent to produce goods should be balanced against the amount of income generated by the goods.
There are some details about the nature of what is paid for to produce some goods, but the formula generally works to work out the cost of goods sold for most products.
The formula that is generally used is:
Goods available for sale (beginning inventory + purchases) – ending inventory = cost of goods sold
The beginning inventory refers to the value on hand to begin with.
Purchases refer to any costs incurred to get the goods to the place where they can be sold.
Ending inventory refers to the final value after sales.
Beginning inventory = $12,000
Purchases = $32,000
Cost of goods available for sale = $44,000
Ending inventory is $11,000
Then the calculation is:
$44,000 - $11.000 = $33.000
The total cost of goods sold is $33,000.