You are studying with some classmates and are reviewing each other’s responses to the following question:

“Why are cost formulas necessary?”

Your classmate responds as follows:

“Cost formulas are necessary because the prices a company pays for purchasing its inventory will be different when the company goes to sell those goods. Cost formulas enable the company to know how much it paid for goods, so these costs can be recorded as cost of goods sold.”

Required

Identify how your classmate’s answer could be substantively improved.