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Financial Terms | |
Cost of goods sold |
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Definition of Cost of goods soldCost of goods soldThe cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw Cost of goods soldSee cost of sales. Cost of goods soldThe cost of the items that were sold during the current period. Cost of goods soldThe accumulated total of all costs used to create a product or service, Cost of goods soldThe charge to expense of the direct materials, direct labor, and
Related Terms:Accounts Payable Days (A/P Days)The number of days it would take to pay the ending balance Average-Cost Inventory MethodThe inventory cost-flow assumption that assigns the average DepletionThe reduction in a natural resource, which equates to the cost of goods sold ![]() Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold First-In-First-Out (FIFO)A method of valuing the cost of goods sold that uses the cost of the oldest item in First-In, First-Out (FIFO) Inventory MethodThe inventory cost-flow assumption that functional classificationa separation of costs into groups based on the similar reason for their incurrence; it includes Gross marginRevenues less the cost of goods sold. gross margin, or gross profitThis first-line measure of profit Gross profitThe result of subtracting cost of goods sold from sales. Synonymous with gross margin. Gross ProfitRevenue less cost of goods sold. Gross profit marginGross profit divided by sales, which is equal to each sales dollar left over after paying INCOME STATEMENTAn accounting statement that summarizes information about a company in the following format: Inventory DaysThe number of days it would take to sell the ending balance in inventory at the INVENTORY TURNOVERThe number of times a company sold out and replaced its average stock of goods in a year. The formula is: Last-In, First-Out (LIFO) Inventory MethodThe inventory cost-flow assumption that assigns the most recent inventory acquisition costs to cost of goods sold. The earliest inventory NET INCOMEThe profit a company makes after cost of goods sold, expenses, and taxes are subtracted from net sales. net realizable value approacha method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either Perpetual inventoryA system that continually tracks all additions to and deletions product contribution marginthe difference between selling price and variable cost of goods sold PROFITWhat’s left over after you subtract the cost of goods sold and all your expenses from sales. ProrationThe allocation of either under- or over-allocated overhead costs among the standard cost systema valuation method that uses predetermined Absorption costingA method of costing in which all fixed and variable production costs are charged to products or services using an allocation base. absorption costinga cost accumulation and reporting Absorption costingA methodology under which all manufacturing costs are assigned Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Activity-based costingA method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers. activity based costing (ABC)A relatively new method advocated for the activity-based costing (ABC)a process using multiple cost drivers to predict and allocate costs to products and services; Activity-based costing (ABC)A cost allocation system that compiles costs and assigns Actual costThe actual expenditure made to acquire an asset, which includes the supplierinvoiced actual cost systema valuation method that uses actual direct Agency cost viewThe argument that specifies that the various agency costs create a complex environment in Agency costsThe incremental costs of having an agent make decisions for a principal. Aggressive Cost Capitalizationcost capitalization that stretches the flexibility within generally All-in costTotal costs, explicit and implicit. Amortized Costcost of a security adjusted for the amortization of any purchase premium or appraisal costa quality control cost incurred for monitoring attribute-based costing (ABC II)an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute Average cost of capitalA firm's required payout to the bondholders and to the stockholders expressed as a Avoidable costscosts that are identifiable with and able to be influenced by decisions made at the business backflush costinga streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires Bankruptcy cost viewThe argument that expected indirect and direct bankruptcy costs offset the other Batch costA cost that is incurred when a group of products or services are produced, batch-level costa cost that is caused by a group of things budgeted costa planned expenditure Capital Cost Allowance (CCA)The annual depreciation expense allowed by the Canadian Income Tax Act. capitalization of costsWhen a cost is recorded originally as an increase Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized againstfuture-period revenue. Carring costscosts that increase with increases in the level of investment in current assets. carrying costthe total variable cost of carrying one unit of Carrying costThe cost of holding inventory, which can include insurance, carrying costscosts of maintaining current assets, including opportunity cost of capital. Cash costThe amount of cash expended. committed costa cost related either to the long-term investment company cost of capitalExpected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations. controllable costa cost over which a manager has the ability to authorize incurrence or directly influence magnitude conversion costRefers to the sum of manufacturing direct labor and overhead conversion costthe total of direct labor and overhead cost; CostA resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined costthe cash or cash equivalent value necessary to attain an CostThe expense incurred to create and sell a product or service. If a product is not cost accountinga discipline that focuses on techniques or Cost Accounting Standards Board (CASB)a body established by Congress in 1970 to promulgate cost accounting cost accumulationthe approach to product costing that determines cost allocationthe assignment, using some reasonable basis, cost avoidancethe practice of finding acceptable alternatives Cost basisAn asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc. Cost behaviourThe idea that fixed costs and variable costs react differently to changes in the volume of Cost-Benefit AnalysisThe calculation and comparison of the costs and benefits of a policy or project. cost-benefit analysis the analytical process of comparing therelative costs and benefits that result from a specific course Cost-benefit ratioThe net present value of an investment divided by the investment's initial cost. Also called cost centera responsibility center in which the manager has Cost centreA division or unit of an organization that is responsible for controlling costs. Cost company arrangementArrangement whereby the shareholders of a project receive output free of cost consciousnessa company-wide attitude about the topics cost containmentthe practice of minimizing, to the extent Cost controlThe process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity. cost control systema logical structure of formal and/or informal Cost depletionA method of expensing the cost of a resource consumed by first determining Cost driverThe most significant cause of the cost of an activity, a measure of the demand for an activity cost drivera factor that has a direct cause-effect relationship Cost driverA factor that directly impacts the incidence of a cost, and which is generally cost driver analysisthe process of investigating, quantifying, cost leadership strategya plan to achieve the position in a cost management system (CMS)a set of formal methods Cost objectAnything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres. Cost objectAn item for which a cost is compiled. For example, this can be a product, Cost of capitalThe required return for a capital budgeting project. Cost of capitalThe costs incurred by an organization to fund all its investments, comprising the risk-adjusted cost of capitalRefers to the interest cost of debt capital used by a business Cost of CapitalThe minimum rate of return a company must earn in order to meet Cost of capitalThe blended cost of a company’s currently outstanding debt instruments Cost of CapitalThe discount rate that should be used in the capital budgeting process. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |