Cost of Goods Sold (or COGS), also known as Cost of Sales; is a category of DIRECT expenses in producing the goods/services sold by a company. Examples of COGS the materials needed to assemble a product and the transportation needed to bring goods from a distributor to a retailer as well as direct labour costs (or sub-con charges) in the production of the goods/services.

It will EXCLUDE indirect expenses such as utilities, rental, legal costs etc. Also for the beginners, we will ignore the impact from the level of inventories available in the company.

But you may ask, WHY is it important to know how much is your COGS/Cost of Sales? Well…. That’s the time for today.

Tomorrow, I will share the importance of understanding COGS.