Let’s assume that ‘x’ business uses the calendar year to record their inventory. Now that you know the importance of calculating the COGS, let’s learn how to calculate COGS using a formula. If the prices are lower than your competitors then also you will incur loss since you are having a low-profit margin.Hence, COGS indirectly helps you in selling your product at the right price that can get you more sales and thereby, also help in earning profit. In such a situation, if your prices are high in the market then nobody will purchase your product and you will incur a loss. Chances are that you might have added more profit margin or less in comparison to your competitors in the market. Once you know the exact purchasing amount and thereafter deciding your profit margin is not an ideal strategy.
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