Cost Of Goods Sold (Cogs)

In accounting, cost of goods sold (COGS) refers to the direct costs associated with the production of the goods or services sold by a company. This includes the cost of the materials used in production, the labor costs associated with producing the goods, and any other direct costs associated with making and selling the product. COGS does not include indirect expenses like marketing or shipping.

If a company sells products that it has manufactured, then its COGS will include both the cost of the raw materials used to make the product and the labor costs associated with manufacturing it. For example, if a company makes widgets, its COGS would include the cost of the metals used to make each widget as well as the labor costs of running the machinery that creates them. If a company sells products that it has purchased from another business, then its COGS will only include the cost of those products; it would not include any labor costs associated with selling them.

COGS is important because it represents how much money a company spends on creating its product or service. The lower a company’s COGS, the higher its profit margins will be. For this reason, companies are always looking for ways to reduce their COGS without impacting the quality or quantity of their products. Many times, this can be accomplished by negotiating better prices with suppliers or finding more efficient methods of production.