Final answer:
The Student's assertion is True: COGS can be determined by calculating the variable cost per unit multiplied by the number of units sold or by using an industry-standard percentage of sales.
Step-by-step explanation:
The student's question is whether the cost of goods sold (COGS) expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales. The answer is True. The COGS can indeed be calculated by either method. In the first method, one would multiply the variable costs per unit, which may include costs such as labor and raw materials, by the number of units sold. The other approach involves applying a standard industry percentage to the sales figures to estimate COGS. This method is sometimes used for simplicity or when precise variable costs are hard to determine.
Variable costs rise and fall with production levels. These costs include expenses like labor, where more production typically requires more work hours, and raw materials. Calculating average variable cost involves dividing the total variable cost by the quantity of output produced, which can help determine profitability; if average variable cost is below the market price, the firm may profit, excluding fixed costs.
Decomposing total costs into fixed and variable parts is essential: fixed costs, such as rent, remain unchanged regardless of production levels, while variable costs fluctuate with the amount of output. An understanding of this cost structure is vital for calculating COGS accurately and managing profitability.