Certified Supply Chain Professional (CSCP) Practice Exam

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Study for the Certified Supply Chain Professional (CSCP) Practice Exam. Prepare with multiple choice questions, each accompanied by hints and explanations. Get ready to ace your exam!

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What does the term 'cost of goods sold' refer to?

The total revenue generated by sales
The total amount of material and labor used
The expenses incurred in marketing
The profit margin of a product

The correct answer is: The total amount of material and labor used

The term 'cost of goods sold' (COGS) refers to the total amount of material and labor used in the production of the goods that a company sells during a specific period. This measurement is crucial because it directly affects the gross profit of a business. By calculating COGS, a company can determine how much it spent on producing the items that were sold, which is essential for pricing strategies, budgeting, and financial analysis. Understanding COGS allows businesses to track the efficiency of their production processes, manage inventory costs, and assess profitability. Thus, recognizing that COGS encompasses both direct material costs and direct labor costs is vital for evaluating a company’s cost structure and financial health.