Cost of Goods Sold
The direct costs attributable to producing goods sold by a company, including materials, labor, and manufacturing overhead, deducted from revenue to determine gross profit.
Cost of Goods Sold
The direct costs attributable to producing or purchasing the goods sold by a company during a specific period, including materials, labor, and manufacturing overhead.
For instance, a retailer that purchases inventory for resale might calculate COGS of $750,000 for the quarter by starting with beginning inventory of $300,000, adding purchases of $800,000, and subtracting ending inventory of $350,000.
Cost of goods sold appears on the income statement as a deduction from revenue to arrive at gross profit. Its calculation and components vary by industry, with retailers focusing on inventory purchase costs, manufacturers including production costs, and service businesses often having minimal or no COGS. Inventory valuation methods (FIFO, LIFO, weighted average) significantly impact reported COGS and, consequently, gross profit and taxable income.