A decisive advantage of using a cost-of-sales process is finding out the gross profit. Since calculating the cost-of-sales only considers revenues and costs related to sale, it provides a reliable indication of a company’s market success and profitability. Knowing the cost of goods sold helps analysts, investors, and managers estimate the company's bottom line. If COGS increases, net income will decrease. A prudent company will try to keep COGS line with yearly budget forecasts.
Grouping the process into collective areas like sales, production and administration often correspond to structures within large companies. In this way, figures can be used as a basis for management’s decision-making, since they clearly show financial strengths and weaknesses in each area and can help to make more informed decisions about what measures may need to be taken to reduce costs.
Cost-of-sales procedures can be applied to individual product groups, sales areas or distribution channels. It provides the company with comparable results to show whether a product range is performing well on the market or whether individual product lines or sales strategies are unprofitable and should be abandoned.
The income statement should be internationally comparable, if the countries adhere to similar accounting principles (see previous paragraphs on LIFO method).