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The Cost of Goods Sold in the Profit and Loss account increases when you sell a product.

a.True
b.False

User Ali Navidi
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1 Answer

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Final answer:

The given statement "The Cost of Goods Sold in the Profit and Loss account increases when you sell a product" is false. Option B. Because the Cost of Goods Sold represents the cost of inventory sold and is realized when a sale occurs. It doesn't increase just because a product is sold. Additionally, higher production costs can affect pricing strategies and supply quantities, influencing the supply curve's direction.

Step-by-step explanation:

The statement is false. The Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold by a company. This cost is recorded on the Profit and Loss account when the inventory is sold.

In other words, the COGS is realized and recorded only when a sale occurs and it does not increase simply because a product is sold; instead, it reflects the cost of the inventory that is now no longer in stock due to the sale.

When considering the effect on a company's supply and pricing, it's notable that if the cost of production increases, to maintain the same level of profits, a firm would need to increase the price for the product.

However, this would be a strategic decision made by the company and is not a direct cause-and-effect relationship with sales volume. Increased costs can lead to decreased supply, as depicted by a leftward shift in the supply curve.

Conversely, if a firm's profits increase, there is a motivation to produce more, leading to an increased supply or a rightward shift in the supply curve at any given price.

Hence, the statement is true. Option B.

User Undeterminant
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