Cost of Goods Sold

Cost of Goods Sold (COGS) refers to the direct costs incurred in producing or purchasing the products a company sells during a specific period. This includes expenses like raw materials, labor directly involved in production, and manufacturing overhead. Understanding COGS is crucial for businesses as it affects profitability; subtracting COGS from sales revenue gives the gross profit. Essentially, COGS helps companies determine how much it costs to make their products, guiding pricing, inventory management, and overall financial analysis. It’s a key component in evaluating a company's financial health and operational efficiency.