Definition
COGS includes raw materials, direct labor, and manufacturing overhead directly tied to production. It's subtracted from revenue to calculate gross profit. COGS excludes selling, general, and administrative expenses. For service companies, it's often called cost of services.
Formula
COGS = Beginning Inventory + Purchases - Ending Inventory
Example
A manufacturer starts with $30M inventory, buys $150M in materials, and ends with $35M. COGS = $145M. With $200M revenue, gross profit is $55M.
FAQ
What is Cost of Goods Sold (COGS)?
Direct costs of producing goods or services sold.
How do you calculate Cost of Goods Sold (COGS)?
A common formula for Cost of Goods Sold (COGS) is: COGS = Beginning Inventory + Purchases - Ending Inventory
Why is Cost of Goods Sold (COGS) important?
Cost of Goods Sold (COGS) helps investors evaluate financial statements and make more informed decisions.