Financial Reporting and Analysis 【Reading 25】Sample
Would an increase in the cost of raw materials used in the production of inventory and would an increase in marketing expenses result in lower gross profit? | Increase in
raw materials cost | Increase in
marketing expense |
Gross profit is equal to sales minus cost of goods sold. Cost of goods sold includes the direct costs of producing a product or service such as raw materials, direct labor, and overhead (fixed costs). Thus, an increase in raw materials costs will result in higher cost of goods sold and lower gross profit. Marketing expenses are considered operating expenses (SG&A), not in cost of goods sold. |