Cost of Goods Sold (COGS) includes all costs associated with creating or obtaining products for sale. This includes direct labor costs, material costs, and other expenses related to the production of goods. COGS does not include any non-operating or indirect expenses such as marketing costs and administrative expenses. The purpose of COGS is to provide an accurate measure of a company’s profitability from its sales activities. By looking at the difference between sales revenue and COGS, businesses can better understand their core operations and make more informed decisions about how to optimize their pricing and product mix.