What costs are directly linked to generating sales, such as raw materials and labor involved in production?

• A. Operational Costs
• B. Cost of Sales
• C. Fixed Costs
• D. Variable Expenses

Answer: (B)

The costs that are directly linked to generating sales, such as the expenses associated with raw materials and labor involved in production, are referred to as the Cost of Sales. This category specifically encompasses the direct costs incurred in creating a product or service that is sold to customers.

These costs are variable in nature; they fluctuate with the level of production or sales. For every unit produced, there will be a direct correlation to the raw materials consumed and labor hours worked. Thus, when sales increase, the Cost of Sales multiplies along with them, reflecting the practical relationship between production activities and sales figures.

While operational costs encompass a broader range of expenses related to running a business, and fixed costs refer to expenses that do not change regardless of sales volume, the Cost of Sales focuses specifically on the direct production costs. Variable expenses also play a role in sales generation, but they can include costs not strictly tied to production, such as shipping or commission fees. Therefore, the Cost of Sales is the most precise term for these direct expenses in the context of generating sales.