Final answer:
A good KPI for reviewing COGS and Sales price is gross margin or profit margin, which can be derived by subtracting the cost of goods sold from the sales revenue. In the example provided, a firm with $1 million in sales revenue and $950,000 in costs had an accounting profit of $50,000.
Step-by-step explanation:
A good KPI (Key Performance Indicator) for reviewing COGS (Cost of Goods Sold) and Sales price might be the gross margin or profit margin. These KPIs show the relationship between the sales price of goods and the costs associated with producing them. To illustrate this, let's answer a self-check question: If a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, we can calculate the firm's accounting profit.
The firm's accounting profit is its total revenues minus explicit costs, including depreciation. If we add up all the costs ($600,000 on labor, $150,000 on capital, and $200,000 on materials), we find the total explicit costs to be $950,000. Subtracting these costs from the sales revenue of $1 million gives us an accounting profit of:
- $1,000,000 (total revenue) - $950,000 (total costs) = $50,000 (accounting profit)
Thus, the firm's accounting profit would be $50,000.