Cost of Goods Sold (COGS) is an accounting term used to describe the direct costs associated with producing a product or providing a service. It is the total cost to a business of the items that it has purchased, manufactured, or otherwise acquired and sold during a particular period of time. This includes direct materials, labor costs for services, and other variable costs directly related to producing the product or service. COGS does not include indirect expenses such as distribution costs and sales force costs. Understanding and analyzing your business’s COGS is essential for understanding profitability and developing sound financial strategies.