# What is the Definition of Cost of Goods Sold?

The definition of cost of goods sold starts with the basic elements of starting inventory balance, additions to the inventory (purchases) and the ending balance. Cost of goods sold are actually more intricate than this formula. Learn the various nuances and issues an accountant must address in calculating the cost of goods sold.

## 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.

## 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.

## An Explanation of Inventory Turnover

A relationship exists between inventory and sales. This is referred to as ‘Inventory Turnover’ or ‘Turnover Ratio’. It is simply the number of days it takes to turn over the dollar value of the inventory. This relationship is important because as the retailer, you would want this number has high as possible.

## 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.

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