Final answer:
To find COGS, subtract the Gross Margin from Sales. With the provided example, the Gross Margin is calculated by adding the accounting profit ($115,000) and the explicit costs ($85,000), which equal the total revenues ($200,000), resulting in COGS of $0.
Step-by-step explanation:
To find the Cost of Goods Sold (COGS) when you are only given Sales and Gross Margin, you will have to rearrange the provided formula. The given formula is Sales Less: COGS = Gross Margin. Essentially, to find COGS, we need to subtract the Gross Margin from Sales. Here's a step-by-step explanation with our example revenues and explicit costs:
Begin with the total revenues which are $200,000.
Subtract the Gross Margin. However, to find the Gross Margin, we must use the accounting profit and explicit costs, where Gross Margin plus explicit costs equals revenues.
Knowing that the accounting profit is $115,000 and the explicit costs are $85,000, we add these to find the Gross Margin ($115,000 + $85,000 = $200,000).
Since the Gross Margin equals the Revenues in this example, the COGS would be $0. However, if the Gross Margin were less than the Revenues, COGS would be the difference between the Sales and the Gross Margin.
In situations where the given formula applies but with different numbers, the process to find COGS would involve the subtraction of Gross Margin from Sales.