How is Costs of Goods Sold calculated?

Costs of Goods Sold (COGS) represents the direct costs attributable to the production of the goods that a company sells during a specific period. To calculate COGS accurately, it is essential to consider the inventory available throughout the period, which includes both the beginning inventory and any additional inventory purchased or produced during that time.

When looking at the choice indicated, the calculation formulated as (Total units available during a period)/(Beginning inventory cost + Cost of Additions to Inventory) takes into account the total units accessible for sale, factoring in both the initial inventory and any new inventory that has been added. However, the ratio needs to align correctly with the outputs from these costs rather than presenting them as a simple division.

In a typical COGS calculation, the formula is more accurately represented as: COGS = (Beginning Inventory + Purchases during the period) - Ending Inventory.

This approach measures how much of the inventory was used up in generating sales, thereby reflecting on the company's cost relative to its sales activities.

Thus, while the provided choice reflects the right context of considering available units and inventory costs, it lacks the precision of a true COGS calculation. The other options presented don’t align with the standard metrics typically used in financial reporting