What is COGS (Cost of Goods Sold)?
Accounting is full of numbers and other things set in stone. Numbers are added and subtracted and multiplied and divided in accounting, and balance sheets are formed based on these calculations. One of the most commonly recognized figures in accounting is cost of goods sold (COGS). Also called cost of sales, COGS is the total direct expenses incurred in the production of a good. COGS includes the cost of materials used to make that good and the cost of labor to produce it. COGS does not include indirect expenses, like marketing, accounting, and shipping. Knowing the COGS helps a business to determine accurately which of its products is turning a profit. By subtracting COGS from the sales revenue, a business can determine the gross profit earned on particular goods. Net profit, in the same way, is the difference between COGS and indirect expenses from sales revenue. COGS and its relationship to profits are perhaps best explained by a specific example. A manufacturer of teddy bears takes
