Cost Of Sales Definition

The cost of sales, also known as the cost of goods sold (COGS), is the direct costs associated with producing the goods or services sold by a company. This includes the cost of materials, labor, and overhead. COGS does not include indirect expenses, such as marketing or shipping.

The calculation for COGS is:

COGS = Beginning Inventory + Purchases – Ending Inventory

Companies use the COGS calculation to track the expenses associated with their inventory and production costs. This information is used in managerial accounting to make decisions about pricing, production levels, and expense control.