ABSTRACT
Gross profit is what is left after paying for Cost of Goods Sold (COGS). COGS is the accumulated total of all manufacturing costs used to create a product that has been sold. These costs fall into the subcategories of direct labor, materials, and manufacturing overhead. Many organizations, in an attempt to motivate their sales force to sell on profitability, rather than volume alone, have structured their commission programs based on gross margin. Again, standard cost and overhead absorption may be working counter to the objective of motivating bottom-line results. Pricing is often dictated by the market. Even so, custom manufacturers have to quote pricing for new products on a regular basis. This generally starts with figuring out the cost based on estimated material requirements, projected cycle times, and projected labor requirements. Then a factor or factors are applied to cost to come up with a price.
