How is "cost of goods sold" best defined?

The definition of "cost of goods sold" (COGS) focuses on the direct costs attributed to the production of the goods that a company sells. This includes the value at cost of the merchandise that has been sold during a specific period, as well as any losses from theft, damage, or other forms of loss.

The correct understanding of COGS includes not just the direct expenses related to producing those goods but also incorporates instances where merchandise is no longer available for sale due to various reasons. Thus, choice C accurately captures the essential components of COGS, which helps businesses to determine their gross profit by subtracting COGS from total revenue.

In contrast, the other options do not align with the definition of COGS. For instance, the total revenue from merchandise sold is actually sales income and does not account for the costs incurred in generating that revenue. The total cost of unsold merchandise refers to inventory costs rather than costs associated with sales. Lastly, profit from sales transactions pertains to net income and not directly to the costs incurred in goods sold.