Question

When PepsiCo tried to go "green" by introducing environmentally friendly products and production processes,

A)	its costs of goods sold most likely increased.

B)	its cost of goods sold most likely decreased.

C)	it probably had no impact on its cost of goods sold.

D)	PepsiCo was able to reduce its sales returns and allowances.

Answer 1

Answer is option “A”- slight increase in cost of production.

Cost of the goods sold refers to the cost that is incurred to produce one unit of marketable goods. Cost of sales takes into account every direct cost without which the product cannot be sold. ‘

Cost of goods sold includes the below cost.

• Cost of raw material required.
• Cost of labor
• Cost of electricity
• Cost of production
• Direct heating and electricity charges.

So, if any of the above expenses are increased this will have a direct impact on the cost of goods.

If Pepsi has introduced environmental friendly product their cost of goods must have increased as the environmental friendly inputs are high in price as compared to those that harm the environment.

On the other hand it is not possible that they were able to reduce the sales returns and allowance as this will have a negative impact on the sales of the company.