The word “cost” means it’s the cost of the merchandise that are sold over a certain amount of time. It is comprised of direct raw materials, direct labor, in manufacturing, and overhead. In other words, these are the costs required to make the product. The fundamental formulas used in Cost accounting include:

• The Total Available is the Beginning inventory plus Purchases
• The end of inventory = the total available Cost of the goods sold
• The Gross Profit is the Sales Revenue + The Cost of Goods sold
• Operating Income = Gross Profit minus General and Selling expenses