Finance Dictionary : Cost of Goods Sold

Cost of Goods Sold


Explore Cost of Goods Sold (COGS), the sum of direct expenses related to goods production or service delivery. Understand its significance in determining gross profit and its role in operational efficiency and pricing strategies.



Cost of Goods Sold, often abbreviated as ‘COGS’, stands as a critical financial metric that encompasses the cumulative direct expenses associated with the production of goods or the provision of services. These direct costs involve expenses directly tied to the creation of a product, including raw materials, labor, and manufacturing costs, or the costs incurred in delivering a service.


COGS plays an integral role in determining a company’s gross profit, as it represents the portion of revenue that is directly consumed by the cost of production.COGS varies by industry and business model, and its calculation necessitates precision to offer a true representation of the costs linked to revenue generation.


Analyzing COGS provides insights into operational efficiency, cost management, and pricing strategies, making it an essential component of financial analysis and business decision-making.


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