Cogs is directly proportional to the number of units of goods sold right? So if we have fewer sales in terms of number of units, the. cOGS should also decrease, correct?
(editiert)
Amortization of machinery is COGS? Seriously? Jesus...
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Cogs and units sold
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Hi!
"Cogs is directly proportional to the number of units of goods sold right? " --> No, that's wrong! COGS is related to the number of units PRODUCED! Usually it is correlated, but it's still an important distinguishment and it shows whether a candidate is a rigorous thinker or not!
Cheers, Sidi
P.S.: I see a couple of comments here saying that COGS includes fixed costs. From my view this is completely wrong! Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. By contrast, fixed costs such as managerial salaries, rent, and utilities are not included in COGS. Have a look at Investopedia - the term COGS is very well explained there!
P.P.S.: If there is a delta between units produced and units sold, this indicates that the inventory stock is increasing or decreasing!
(editiert)
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Hi there,
If you sell fewer units, COGS (the direct cost of producing goods or services) should also decrease. However it may not decrease proportionally.
COGS may also include costs like labour, which may be fixed. When the labor cost is fixed, then selling fewer units won’t decrease proportionally the COGS, as the labour cost won’t decrease.
Hope this helps,
Francesco
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It is not mandatory.
COGS can be fixed costs, variable costs (as you are expecting), or a mix of both (most likely).
If you provide more context on the specific case - we can comment better
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Not proportionally, COGS very often includes some fixed cost (e.g., labour, amortization of machinery) - this portion will not change depending on the number of units sold/produced
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Hi there,
Sidi is correct...COGS will change based on units produced.
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I don’t understand. In the case direct labour cost is fixed, why are you saying COGS doesn’t include fixed costs?
Direct labour is not fixed. That’s why it is direct! E. g. wages paid on base of units produced. Imagine for example agriculture workers who are harvesting asparagus and are paid based on the total weight of asparagus harvested.
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Sorry but what you are saying doesn’t make sense. Direct labor cost simply means the cost is for a worker directly related to the production of a product/service. There is no reason to assume that cost should always be variable