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Cost of Goods Sold

Cost of Goods Sold (Definition)​

Cost of Goods Sold (COGS) refers to the direct costs attributable to the production of the goods sold by a company.

Key aspects of Cost of Goods Sold include:

  1. Includes the cost of materials and direct labor used in creating the good
  2. Does not include indirect expenses such as distribution costs and sales force costs
  3. Directly impacts a companys gross profit and profit margins
  4. Used to calculate gross profit: Revenue - COGS = Gross Profit
  5. Can vary depending on the accounting standards used (e.g., FIFO, LIFO)
  6. Important for pricing decisions and inventory valuation
  7. Monitoring COGS can help identify areas for cost reduction and efficiency improvements

Understanding and managing Cost of Goods Sold is crucial for maintaining profitability and competitiveness.