subject: Computing Cost-of-Goods-Sold for your Business [print this page] Computing Cost-of-Goods-Sold for your Business
The very nature of the dollar/discount industry is high volume and lower margins. For those running a dollar store, this means you face an almost constant stream of incoming new merchandise to replenish for sales already made and to insure you have all the new, hot-selling and impulse products your shoppers seek. With all of the merchandise coming and going, maintaining tight control over merchandise costs is a necessity. But how do you compute costs? Start by speaking with your accountant to understand the formula.
However for the daily operation of your store it is important to include all of the costs associated with landed merchandise. If you are running a dollar store you want to know the cost of every item when it final is displayed on your sales floor and then sells. That means just knowing you paid 60 cents for one item isn't enough. You must also gather data and add that data into your calculation.
Start with the wholesale price you pay for all merchandise. Not only must you know the exact price, but you must continually be working to reduce that price. Even a penny saved on all products makes a difference across an entire year.
Add to this the freight associated with bringing those items to your store. That's right, add in transportation costs. Some of the very best prices you locate will become the worst prices of all once freight costs have been added into the formula.
Finally you must add in the costs associated with merchandise that cannot be sold for one reason or another. For example, a crushed box that yields just a pile of broken parts cannot be sold. Yet until you receive credit (If there will be credit.) this is a cost that must be spread across all other merchandise in the load.
