ACC 281 Week 1 DQ1 - 7410

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Week 1 DQ1

What items make up cost of goods sold? How does beginning and ending inventory affect cost of goods sold? How is gross profit computed? Why is gross profit an important measure of profitability?  What role does inventory play in the calculations of both Cost of Goods sold and gross profit?

What items make up cost of goods sold?

Cost of goods sold is made up of discounts, freight, purchased inventory, and beginning inventory. 

How does beginning and ending inventory affect cost of goods sold?

Cost of goods sold changes because as inventory is purchased it is added to the beginning inventory which changes the amount of inventory to be sold.  Cost of goods sold is also changed for the ending inventory because some of the beginning and purchased inventory has been sold during that period.

How is gross profit computed?

Gross profit is computed by subtracting cost of goods sold from net sales or the amount of sales revenue. 

Why gross is profit an important measure of profitability? 

Gross profit represents how much profit was earned from the sale of its purchased merchandise.  Managers can closely monitor and compare their own gross profits with past periods or with competitors and with industry averages.  By monitoring and comparing the managers can determine if the company's purchasing function and pricing policies are effective.

What role does inventory play in the calculations of both Cost of Goods sold and gross profit?


Both cost of goods sold and gross profit are determined by inventory that is on hand and sold.  How much inventory that is bought and sold determines the cost and profits to the company. 

 

Solution Description

Week 1 DQ1

What items make up cost of goods sold? How does beginning and ending inventory affect cost of goods sold? How is gross profit computed? Why is gross profit an important measure of profitability?  What role does inventory play in the calculations of bot