This merchandising company would like to calculate its cost of sale for the accounting year 2021 (beginning on January 1st, 2021, and ending on December 31st, 2021). Suppose a merchandising company's accounting year spans from January 1st to December 31st. Therefore, the company should carefully determine its inventory at the beginning and end of its account year to get an accurate estimate of its COS. Inventory is also an essential component in this calculation. Instead, the costs include depreciation, rent paid on facilities, wages, and advertising expenses. The indirect costs mentioned above are not included in the calculation. That is because it can sometimes be challenging to differentiate between the direct costs that go into the production or the purchase of merchandise and the indirect costs, such as several overhead costs.
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