![]() It is quite evident why every company must be diligent in listing their expenses. Their net profits, the amount that is taxable, is $1,500 - $1,000 = $500. $1,500, however, is not their profits because they spent $1000 is producing these 10 shoes. ![]() In our above example, if Nike sells 10 pairs of shoes at $150 each, they earn $150 x 10 shoes = $1,500. The difference between a company's net revenue and expenses is its gross profits, an amount that is taxable. Why Correctly Calculating Cost of Goods Is Crucial This article will further explain what exactly cost of goods is, what can be added under cost of goods, why it is an expense, etc. The short answer is because the company expends this amount to own (by buying or producing) this product. The cost of goods sold is an important expense in a seller's income statement, and, in most cases, will be the largest expense. If Nike sells ten pairs of shoes, they have sold products that cost them a total of $100 x 10 shoes = $1000 to produce. This amount will include raw materials, man-hours, packaging, storage, etc., that Nike exhausts on this shoe. Lets look in details: Cost of Goods With An Exampleįor example, assume Nike spends $100 on producing one shoe.
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