If the original purchase price of shirts was $2,000 and $300 was spent on shipping, what is the COGS when all shirts are sold for $4,000 and ending inventory is zero?

If the original purchase price of shirts was $2,000 and $300 was spent on shipping, what is the COGS when all shirts are sold for $4,000 and ending inventory is zero?

• A. $4,000
• B. $2,300
• C. $1,700
• D. $2,000

Answer: (B)

COGS includes all costs to acquire inventory and get it ready for sale. Here that means the purchase price of the shirts plus the shipping cost. Because all shirts are sold and ending inventory is zero, COGS is the total cost of goods available for sale: 2,000 + 300 = 2,300. The $4,000 selling price doesn’t change COGS; it affects gross profit, which would be 4,000 − 2,300 = 1,700. The other amounts either omit shipping (2,000) or reflect gross profit (1,700) or revenue (4,000), not COGS.

COGS includes all costs to acquire inventory and get it ready for sale. Here that means the purchase price of the shirts plus the shipping cost. Because all shirts are sold and ending inventory is zero, COGS is the total cost of goods available for sale: 2,000 + 300 = 2,300. The $4,000 selling price doesn’t change COGS; it affects gross profit, which would be 4,000 − 2,300 = 1,700. The other amounts either omit shipping (2,000) or reflect gross profit (1,700) or revenue (4,000), not COGS.