What is Gross Profit?
Gross Profit is the profit generated from goods and services sold. It measures the profitability of products. It’s the difference between revenue from these products and the cost to provide these products. Gross Profit = Revenue – Cost of Goods Sold.
How do we classify employees’ wage? I understand we classify management‘s salary into G&A, but do we count regular employees’ wages as COGS or G&A as well. For lululemon as a example, the COGS consists cost of making clothes, cost of running factory, cost of running physical and internet store, so do we include cost of having salesperson as well in COGS?
Employee compensation is split into the different categories based on the purpose of the employees’ labor.
Store sales associates’ wages are considered COGS. Factory workers’ wages are considered COGS. The wages of employees who work to produce the product / service that customers purchased are usually classified under COGS.
On the other hand, the wages of corporate sales force and marketing personnel are probably included in the Sales & Marketing cost bucket. The wages of corporate finance, accounting, legal, IT, senior management are probably included in the General & Administrative cost bucket.
So it’s not necessarily classification by employees’ wages, but classification by the purpose of the employee.
Got it! I understand the concept of employee’s wage now!