Explanation

An increase in COGS (Cost of Goods Sold) decreases gross profit.

Gross profit is calculated by subtracting COGS from net sales:

Gross Profit = Net Sales - COGS

If COGS increases, the difference between net sales and COGS decreases, resulting in a lower gross profit.

Explanation

Sales commissions are selling expenses, not directly related to production.

Therefore are not included in COGS (Cost of Goods Sold).

Explanation

COGS (Cost of Goods Sold) includes costs directly related to production, such as:

• Direct materials
• Direct labor
• Overhead costs (including depreciation of manufacturing equipment)

Explanation

LIFO (Last-In, First-Out) assumes that the newest inventory items (those purchased or produced most recently) are sold first.

This method is commonly used in industries where prices are rising or inventory is non-perishable.

Explanation

FIFO (First-In, First-Out) assumes that the oldest inventory items (those purchased or produced first) are sold first.

This method is commonly used in industries where inventory is perishable or has a limited shelf life.

Explanation

COGS (Cost of Goods Sold) is subtracted from Net Sales to determine Gross Profit. The formula is:

Gross Profit = Net Sales - COGS

Net Sales refers to the total revenue generated from sales, minus any returns, discounts, or allowances.

Explanation

Direct labor is a component of COGS.

As it represents the cost of labor directly involved in the production of a company's products or services.

COGS typically includes:

• Direct materials (raw materials, components)
• Direct labor
• Overhead costs (manufacturing overhead, factory overhead)
• Distribution and shipping costs

Explanation

COGS stands for Cost of Goods Sold.

It represents the direct costs associated with producing and selling a company's products or services.

This includes expenses such as:

• Raw materials and labor
• Overhead costs
• Manufacturing expenses