What formula is used to calculate Cost of Goods Sold (COGS)?

The formula for calculating Cost of Goods Sold (COGS) fundamentally reflects how much it costs a business to produce the goods sold during a specific period. The correct choice highlights the relationship between the costs incurred to produce or purchase inventory and the revenue generated from sales.

The logic behind using cost sold divided by total sales is that it helps to determine what portion of sales revenue can be attributed to the actual cost of goods that were sold. In essence, it calculates the direct costs associated with the production of the items that have been sold, while also providing insight into the efficiency of production and inventory management.

Understanding COGS is crucial for determining gross profit, as it allows businesses to assess how much of their revenue is consumed by the cost of goods and what remains for operational expenses and profit. This calculation can help in forming strategies for pricing, inventory management, and overall financial planning.

In contrast, the other options do not accurately reflect the relationship needed to compute COGS. Instead of measuring the direct costs against revenues, they look at inventory or turnover ratios that do not yield a clear understanding of COGS in the way that the correct answer does.