One of the most important costs in the hospitality businesses is the Cost of Sales (or...

One of the most important costs in the hospitality businesses is the Cost of Sales (or Cost of Goods Sold). How is it determined? Please select the most appropriate answer from the list below.

1. It is calculated by adding up all purchases of inventory during one accounting period.

2. It is the amount of inventory available on hand. It is calculated by adding the value of individual items by counting them.

3. It is determined by adding all purchases to the beginning inventory amount, and then by subtracting the amount of inventory on hand.

4. It is calculated by multiplying the target percentage (%) predetermined by the management.

How do we determine whether the labor expense has truly grown in a year compared with that of the previous year?

1. If the current year's amount is larger than that of the previous year, it has truly grown.

2. If the current year's difference between the budgeted labor expense and the actual one than that of the previous year, then this year's labor expense has truly grown.

3. Compare each year's labor expense against the revenues amount of the relevant year. If this year's labor expense percentage (%) is larger than that of the previous year, it has truly grown.

4. Divide the current year's labor expense by the previous year's labor expense. If the result is larger than 100%, then it has truly grown.

Expert Solution

How to calculate the cost of sales (or Cost of Goods Sold or COGS)

COGS = Opening Inventory + Purchases - Closing Inventory

1. It is calculated by adding up all purchases of inventory during one accounting period.	This would be incorrect because NOT all purchases would have been used
2. It is the amount of inventory available on hand. It is calculated by adding the value of individual items by counting them.	This would only give the closing inventory value
3. It is determined by adding all purchases to the beginning inventory amount, and then by subtracting the amount of inventory on hand.	THIS IS CORRECT
4. It is calculated by multiplying the target percentage (%) predetermined by the management.	This is incorrect

1. If the current year's amount is larger than that of the previous year, it has truly grown.	This would mean it has grown NOT TRULY grown
2. If the current year's difference between the budgeted labor expense and the actual one than that of the previous year, then this year's labor expense has truly grown.	This is INCORRECT because this year's actual have not been considered in this approach
3. Compare each year's labor expense against the revenues amount of the relevant year. If this year's labor expense percentage (%) is larger than that of the previous year, it has truly grown.	This is CORRECT. Look at it this way, the company sold 100 units in year 1 and 150 units in year 2. To make these additional units more labor would have been required so labor would have definitely increased. But to see if it has truly grown, percentage of sales is the best way
4. Divide the current year's labor expense by the previous year's labor expense. If the result is larger than 100%, then it has truly grown.	This is same as first option just shown in a different way mathematically

ekkarill92 answered 1 year ago

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