Cost of Goods Sold
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Written by Nate Jewell
Updated over a week ago

What is Cost of Goods Sold?

  • Definition: Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs. Cost of Goods Sold is also referred to as “cost of sales.”

  • In Plain English: Cost of goods sold (COGS) is the amount of money it takes to create a product or service that you are selling.

  • Example: If you sold a shoe for $100 and the shoe took $15 in leather, $15 in labor, and $10 in other materials to create the shoe, your cost of goods sold for the shoe would be $15+$15+$10=$40

Why Should You Care?

  • Cost of goods sold tells you the cost of creating a product or service, and ties directly into your Gross Profit.

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