How do sales and cost of goods sold typically behave in relation to one another?

Sales and cost of goods sold (COGS) typically behave in a way that they move together. This is primarily due to the direct relationship between the sales of a product and the costs associated with producing or purchasing that product. When a company experiences an increase in sales, it generally means that more goods are being sold, which naturally translates to an increase in costs incurred to produce or buy those goods.

As sales rise, assuming stable pricing and production processes, the COGS will also rise because the company needs to acquire more inventory to meet the demand from increased sales. Conversely, if sales decline, COGS will also likely decline, reflecting the decrease in product movement.

While purchase prices changing can affect profitability, they do not fundamentally alter the relationship between sales and COGS. Thus, COGS tends to align closely with sales trends, making it accurate to say that they move together by default. Understanding this relationship is essential for financial analysis and ensuring that appropriate measures are taken to manage both sales and associated costs effectively.