Learning Business: What is Cost of Goods Sold?

 
When deciding on a price to sell your product at, there are many things to consider. One of those things is the cost of the goods you want to sell. Cost of Goods Sold means exactly that: how much it cost to make/produce the items you want to sell.
To try to count your costs of goods sold, you must measure the costs of all the inputs of your product. Other costs may affect the price you decide to sell at, but they are not a part of your cost of goods sold.
Say you are selling a bracelet.
It is the most beautiful bracelet in your town, but you cannot decide on a price.
This bracelet is made with beads, and string. For each bracelet, you had to use 10 beads, which cost you $1 for all 10. The string cost you $0.25.
Therefore, the cost to produce each bracelet was $1.25.
Should the cost of production affect the price you decide to sell it at?
 
WHY IS COST OF GOODS SOLD IMPORTANT?
 
To be an effective seller, you must always be aware of the costs of the goods you want to sell.
If you didn’t know that your bracelet cost you $1.25 to make, what would happen if you sold it for $1?
After all you hard work, you’d be losing money on the sale of each bracelet. If you sold it for $1.25, you would only be covering your costs. Meaning that you’d have no money for yourself after the sale of your bracelets.
If you know your Cost of Goods Sold, you can make sure that you are selling your bracelet for more than your costs. Meaning that for any price above $1.25, you will be making enough money, to take some home for yourself!
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