Cost Of Goods Sold (COGS) is a business metric used to measure the direct costs associated with producing goods for sale. It includes raw materials, labor, shipping and any other expenses necessary to bring the product from its initial state to the finished product ready for resale. Operating Expense, on the other hand, refers to all the costs associated with running a business that are not directly related to production. This includes rent, utilities, marketing, advertising, payroll, administrative costs, insurance, and depreciation. A company must have accurate estimates of both COGS and Operating Expense in order to accurately calculate their net profits and losses.