![]() They’re one of the most important calculations you can make for several reasons, and they lead to more important overall figures. It’s tempting to skip over calculating the costs of goods sold, but don’t. It also helps companies identify damaged, obsolete and missing (“shrinkage”) inventory.Why are the costs of goods sold important? This physical count is a double check on “book” inventory records. Most companies do periodic physical counts of inventory to true up inventory quantity on hand at the end of a period. For this reason, the different methods for identifying and valuing the beginning and ending inventory can have a significant impact on COGS. Ensure that any other direct costs of production are included in the valuation of inventory.Īs evidenced by the COGS formula, COGS and inventory go hand-in-hand. ![]() Typically, it’s based on physical cycle counts and is done in accordance with the company’s inventory-valuation method of choice.
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