Quick Definition

Cost of Goods Sold (COGS) refers to the direct costs attributable to the production of the goods sold by a company. This includes the cost of the materials and labor directly used to create the product.

Formula

Examples

• 1A bakery calculates its COGS by adding up the cost of flour, sugar, and other baking ingredients, plus the wages paid to bakers.
• 2A car manufacturer includes the cost of steel, electronics, and other materials, as well as the labor costs of assembly line workers, in its COGS.
• 3A clothing retailer determines COGS by summing the purchase price of the garments from manufacturers plus any direct labor costs for alterations.
• 4A software company may include the cost of servers and electricity used in the development phase as part of COGS, along with the salaries of software developers.

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