Q. Explain about Cost of goods sold?
Cost of goods sold is the main expense in merchandising companies. Note the cost of goods sold segment of the classified income statement in Exhibit 39. This section has previously discussed the items used in calculating cost of goods sold. Merchandisers habitually highlight the amount by which sales revenues exceed the cost of goods sold in the top part of the income statement. The surplus of net sales over cost of goods sold is the gross margin or gross profit. To express gross margin as a percentage rate we divide gross margin by net sales. In Exhibit 39 the gross margin rate is approximately 39.3 per cent (USD 103,000/USD 262,000). The gross margin rate indicates that out of every sales dollar approximately 39 cents is available to cover other expenses as well as produce income. Business owners watch the gross margin rate closely since a small percentage fluctuation is able to cause a large dollar change in net income. As well a downward trend in the gross margin rate may indicate a problem such as theft of merchandise. For example one Southeastern sporting goods company SportsTown Inc suffered noteworthy gross margin deterioration from increased shoplifting and employee theft.