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“The company’s auditors will work hard to attest to the value of the cost of goods...

“The company’s auditors will work hard to attest to the value of the cost of goods sold but because it is a summary number, it is not useful for internal decision-making.” Do you agree with that statement? Why or why not?

Please cite your sources.

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Answer #1

The cost of goods sold determines the gross profit/loss of the business and hence it is integral to decision making. This is a vital piece of information as it shows the actual cost of the the products which are sold. Thisis the direct cost of production of the goods and is computed as Opening stock+Purchases- Closing stock. It takes into consideration the direct labour and cost of materials. This is a useful metric since the firm knows what proportion of sales is its direct cost. This can be compared to other companies in the same business to assess if its cost is too high or too low.

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