What is included in the Cost of Goods Sold?

Cost of Goods Sold (COGS) encompasses all costs associated with preparing stock for sale, which includes not only the purchase price of the inventory but also additional costs that contribute to making the goods ready for sale to customers. This can involve costs such as shipping, handling, storage, and any direct materials and labor that go into producing or acquiring the items.

Given that COGS measures the total expenses required to produce and sell a good, option B accurately reflects the comprehensive nature of these costs. For instance, if a company purchases raw materials, the price of those materials is part of COGS. However, labor costs to transform those materials into finished products and shipping costs to bring the products to a retail location also form part of COGS, hence the inclusion of all relevant costs to prepare stock for sale is key to determining the accurate expense associated with goods sold during a period.

Understanding this scope helps in properly assessing the financial performance of a business, allowing for a more effective analysis of profit margins and overall profitability.