Cost of Goods Sold (COGS)

What is Cost of Goods Sold (COGS)?

Cost of Goods Sold (COGS) refers to the direct costs incurred in the production of goods that a company has sold within a particular reporting period. It includes expenses such as the cost of materials and labor directly tied to the production of the tangible goods.

Short Description: The direct costs attributable to the production of goods sold by a company within a specific period.

• Materials: The raw materials necessary for manufacturing the products.
• Labor: Wages paid to workers directly involved in the production.
• Manufacturing Overhead: Indirect costs such as utilities for the factory, that are necessary to produce goods.

COGS is essential for calculating a company's gross profit, which is determined by subtracting COGS from total revenue. It is a key component in assessing the efficiency of a company in converting raw materials into profitable final products and directly affects a company's financial health and profitability analysis.