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What does COGS stand for?
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GPT-5 mini
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COGS stands for "Cost of Goods Sold."
Briefly:
- It’s the direct cost attributable to the production (or purchase) of the goods that a company sells during an accounting period.
- On the income statement, Revenue − COGS = Gross Profit.
Common formula for a merchandising business:
COGS = Beginning Inventory + Purchases (or Cost of Goods Purchased) − Ending Inventory
For a manufacturer, COGS is derived from the cost of goods manufactured and the change in finished goods inventory:
COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured − Ending Finished Goods Inventory
What’s included:
- Direct materials
- Direct labor (for manufacturers)
- Manufacturing overhead directly tied to production
- For resellers, the purchase cost of inventory and shipping/handling related to acquiring it
What’s excluded:
- Selling, general & administrative (SG&A) expenses (marketing, rent, salaries not tied to production)
- Interest and tax expenses
Quick example:
Beginning inventory $10,000 + Purchases $40,000 − Ending inventory $8,000 = COGS $42,000.
COGS affects gross margin and taxable income, and its calculation depends on inventory valuation methods (FIFO, LIFO, weighted average).
Briefly:
- It’s the direct cost attributable to the production (or purchase) of the goods that a company sells during an accounting period.
- On the income statement, Revenue − COGS = Gross Profit.
Common formula for a merchandising business:
COGS = Beginning Inventory + Purchases (or Cost of Goods Purchased) − Ending Inventory
For a manufacturer, COGS is derived from the cost of goods manufactured and the change in finished goods inventory:
COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured − Ending Finished Goods Inventory
What’s included:
- Direct materials
- Direct labor (for manufacturers)
- Manufacturing overhead directly tied to production
- For resellers, the purchase cost of inventory and shipping/handling related to acquiring it
What’s excluded:
- Selling, general & administrative (SG&A) expenses (marketing, rent, salaries not tied to production)
- Interest and tax expenses
Quick example:
Beginning inventory $10,000 + Purchases $40,000 − Ending inventory $8,000 = COGS $42,000.
COGS affects gross margin and taxable income, and its calculation depends on inventory valuation methods (FIFO, LIFO, weighted average).
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