Cost of Goods Sold (COGS)
Definition
COGS represents the direct costs of producing goods sold during a period. It includes materials, labor, and manufacturing overhead directly tied to production.
Why It Matters
- Key input for calculating Gross Profit and Gross Margin.
- Helps evaluate production efficiency.
- Affects pricing, profitability, and inventory management.
What’s Included
- Raw materials
- Direct labor
- Manufacturing overhead
- Freight‑in
- Factory utilities
What’s Not Included
- SG&A
- Marketing
- R&D
- Distribution costs
- Administrative overhead
Example
If a company spends $600M on materials, labor, and factory overhead, its COGS = $600M.