Question

What is the target % of gross expense for COGS?

a) 10-20%
b) 50-60%
c) 80-90%
d) 100%

Answer 1

The target % of gross expense for COGS varies by industry but for many businesses, a common target is 50-60% (option B). This range allows for profitability after accounting for other operating expenses beyond COGS. It's important for a business to maintain a manageable COGS to ensure financial success.

Step-by-step explanation:

Cost of Goods Sold (COGS), which is a critical financial measurement in accounting and business operations. The target percentage of gross expenses attributable to COGS varies by industry and business model. However, there is no one-size-fits-all answer. For instance:

• Option a (10-20%) might be relevant for industries with low production costs relative to sales price.
• Option b (50-60%) is common in retail, where markup percentages often fall within this range.
• Option c (80-90%) could apply to businesses with minimal overhead or operating expenses outside of COGS.
• Option d (100%) would not be feasible as businesses need to cover additional expenses beyond COGS to be profitable.

In this context, the correct answer is likely b (50-60%), as this is a common target for many businesses, where COGS typically includes direct materials, direct labor, and direct overhead costs involved in production. It's important to aim for COGS that allows a sufficient markup for profitability after considering all other operating expenses.