## Merchandise Sold

Merchandise Sold

Cost of merchandise sold is an accounting term used primarily by retailers. It refers to the cost a retailer paid for the merchandise it sold in any given time frame. The time frame for the cost of merchandise sold could be one month, 6 months, but no longer than one year.

Cost of merchandise sold is also referred to by many as cost of goods sold.  The term cost of merchandise sold was created to distinguish a retailer from a manufacturer.  Furthermore, factory overhead and direct labor are included in the cost of goods sold for a manufacturer.  Since a retailer purchases finished goods, a manufacturing process including labor and raw materials is unnecessary.  As a result, retailers often use the term cost of merchandise sold.

Cost of merchandise sold is achieved by adding the beginning inventory to the merchandise purchased. The resulting figure is called total merchandise available for sale.  Then subtract the value of the merchandise on hand or ending merchandise and the resulting figure is the cost of merchandise sold.  Below provides a chart so you can easily see the formula or calculation.

Beginning Inventory merchandise                           \$   40,000
Add: Purchases of merchandise                              \$ 200,000
Equals: Total Merchandise available for sale            \$ 240,000
Less: Ending Merchandise                                       (\$30,000)
Cost of Merchandise Sold                                    \$ 210,000

As you can see, the retailer had \$40,000 worth of merchandise at the beginning of the fiscal year.  \$200,000 worth of merchandise was purchased throughout the fiscal year which means \$240,000 worth of merchandise was available for sale during the fiscal year.  The company then counted its inventory at the end of the fiscal year and determined the value of the unsold merchandise (or ending inventory) amounted to \$30,000.  The ending merchandise of \$30,000 is subtracted from the total merchandise available for sale to get the cost of merchandise sold during the fiscal year.

Below provides a number of common questions retailers have relating to cost of merchandise sold.

Do you include labor in the cost of merchandise sold? Since a retailer buys finished merchandise, meaning the merchandise is immediately ready for sale when it arrives at their place of business, labor costs are not included in the cost of merchandise sold. On the other end of the continuum, a manufacturer of clothing, for instance, would include direct labor in their cost of goods sold. But since retailers buy “finished goods” or “ready for sale” merchandise, neither direct labor nor factory overhead is included in the cost of merchandise sold.

Should shipping costs be included in the cost of merchandise sold? Shipping costs or delivery fees paid by a retailer to ship the merchandise to their place of business are included in the cost of merchandise sold.  Furthermore, shipping costs are considered direct costs related to the sale of the merchandise and, therefore, must be included in the cost of merchandise sold.