Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) refers to the total expenses a business incurs to produce the goods it sells during a specific period. This includes costs like materials, labor, and overhead associated with manufacturing the products. COGS is important because it directly impacts a company’s profitability; by subtracting COGS from sales revenue, businesses can determine their gross profit. Understanding COGS helps companies manage costs effectively and set prices to ensure they cover expenses and achieve desired profits. COGS is typically reported on a company’s income statement.