Actual Cost of Good to Be Used in the Cost of Goods Sold

Subject: Economics
Pages: 1
Words: 276
Reading time:
< 1 min

There are numerous issues that an organization can experience with regard to the cost of various products. First, organizations find it hard to determine the level of credit attributable to a product because of the compensation given to employees involved in the production process. This challenge involves the need to establish the cost of producing a product using its market price. However, it is challenging to determine the cost, especially when dealing with products produced in large quantities. For example, ZOFT Gum Company makes different varieties of chewing gum. Determining the cost of producing a single brand of chewing gum is difficult because of the nature of the production process and the sale of the product.

Second, it is very challenging for organizations to determine the cost of production because the prices of raw materials keep changing. For example, the Bigfoot Bread Company buys wheat in large amounts. However, due to varying prices of wheat in the market, it is challenging for the company to establish the value of the amount of wheat used in bread production using the amount of money made from sales. Third, organizations can experience difficulties in determining the cost of various products due to issues relating to changing levels of demand in the market. For example, a company like Coca-Cola can have difficulties pricing its products if the demand for soft drinks in a specific market goes lower than the supply. Normally this would create the need to lower the prices of soda. However, due to the need to cover the cost of production, it is difficult to price the products under such circumstances.