# What is ‘Cost of Goods Sold’

Cost of goods sold is an accounting formula used with the retail industry and is one section of the profit and loss statement. Several articles on this site explain the formula in detail and how it is presented on the report.

## Definition of Contribution Margin

Contribution margin is a core business concept and is often used in cost accounting to identify the amount of financial contribution a sold product provides to the company.  Simply put, contribution margin is the sales price less the direct costs (sometimes referred to as variable costs).

## How are Cost of Goods Sold in Retail Determined?

Each industry is different in determining costs of goods sold or cost of services rendered.  Retail uses two distinct methods to calculate costs of goods sold. The first is called ‘Specific Identification’ whereby each item sold is specifically identified to its recorded cost. The second method is referred to as ‘Inventory Adjustment’ format. In this method, a beginning and ending balance is recorded along with the purchases throughout the year.

## Percentage of Completion Method for Accounting in Construction

In construction accounting, the percentage of completion method is the preferred tool to account for revenues and direct costs of construction. If you are an owner of a contracting business, this is the best method of accounting.

## Small Business Model Series Entry #6 – Number Crunching Time

While I wait on family and friends to send me information on the location of ATM’s, I decided it is time to do some preliminary number crunching. My initial introduction to this illustrated a very good return. I’m really interested in determining if I can make some real money or will this be nothing more than an exercise in frustration.

## What is ‘Cost of Goods Sold’?

Simply put, ‘cost of goods sold’ equals the direct costs of materials, human resources, and equipment needed to produce the item sold. However, this can be confusing because there are many marginal cost items that affect the real cost of producing and selling the item.

## What is the Difference between Markup and Margin?

It is amazing how one simple formula can be so confusing to the average business owner. The formula is markup. It is defined as the dollar amount or percentage of the cost of the item added to the item to equal its sales price. Many entrepreneurs especially those in retail confuse this simple formula with margin.

## Cost Accounting – Case Study

Cost accounting is an effective internal accounting process to evaluate company performance at the product/project level.

error: Content is protected !!