The Cost of Goods Sold (COGS) Formula Manufacturing is an official business definition that is used to measure the costs associated with producing goods or services. This formula takes into account three major expenses: direct materials, labor, and overhead expenses such as utilities, rent, depreciation, etc. By considering all production costs, manufacturers can more accurately assess their profit margins and make more informed financial decisions. The COGS Formula Manufacturing process may not seem very exciting, but adhering to this definition can have a big impact on your company’s bottom line.