Cost of sales refers to the direct costs attributable to the production of the goods or supply of services by an entity. It is also commonly known as the cost of goods sold (COGS) and is a key part of the performance metrics of a company.
It is extremely important to determine the correct Cost of Sales. This is so because you need to ensure that the pricing of your products or services can provide an appropriate gross profit margin and put the business in position to maximize profitability.
Therefore, businesses need to carefully determine their costs so they can properly price their products and services. By doing this, you can avoid pricing it too high or too low so a reasonable gross profit margin can be earned without jeopardising your competitive advantage in the marketplace.