The Income Statement Cost Of Goods Sold (COGS) is a measure of the total expenses incurred in producing, handling and selling a product or service. It includes the direct cost of materials and labor used to produce products and/or services, as well as any indirect costs, such as overhead expenses related to operations. This metric enables businesses to calculate their gross profit margin, which measures how efficiently all costs involved in producing a product or service are recovered. By understanding their COGS, companies can make wise decisions about pricing and production levels that will ultimately lead to increased profits.