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Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good.
The formula for calculating cost of goods sold (COGS) is the sum of the beginning inventory balance and purchases in the current period, subtracted by the ending inventory balance.
You can calculate the cost of goods sold in four steps: Computing beginning inventory. Determining purchases. Calculating ending inventory. Apply the cost of goods sold formula: COGS = beginning inventory + purchases - ending inventory.
Cost of Goods Sold (COGS) is the direct cost of a product to a distributor, manufacturer, or retailer. Sales revenue minus cost of goods sold is a business’s gross profit. The cost of goods sold is considered an expense in accounting. COGS are listed on a financial report. There are two ways to calculate COGS.
Learn the definition, formula, and variables surrounding the cost of goods sold (COGS). Understand how you can use it to improve your business's profitability.
Gross profit is obtained by subtracting COGS from revenue, while gross margin is gross profit divided by revenue. The higher a company’s COGS, the lower its gross profit. So, COGS is an important concept to grasp.
The cost of goods sold (COGS) is how much it costs a business to produce its goods. Learn how this metric is used on income statements to determine gross profit.