![]() ![]() While the cost of goods sold focuses on cost, the metric is calculated in a roundabout way. ![]() But, it excludes any indirect or fixed costs such as overhead and marketing it’s just the cost to purchase or manufacture inventory sold in a given timeframe. It includes all costs directly allocated to the goods or services sold in a given week, month or year. What is cost of goods sold (COGS)?Ĭost of goods sold is a company’s direct cost of inventory sold during a particular period. This is important because it has a significant impact on a company’s profitability over a given period. This article is for businesses that want to better understand accounting and financial principles like COGS and cash flow.Ĭost of goods sold (COGS) is calculated by taking the value of inventory at the beginning of the period being studied, adding the cost of any new inventory purchased over the covered period, and subtracting the value of inventory held at the end of the period.ĬOGS = Beginning Inventory + Purchases – Ending InventoryĬOGS is used to determine the company’s direct cost to acquire or manufacture all its products sold during a particular period.Businesses can also deduct COGS from their taxes, so it is important to track expenses closely.COGS helps businesses understand a portion of their expenses but does not include overhead expenses like marketing budget.Cost of goods sold (COGS) expresses how much businesses had to invest in inventory they ultimately sold throughout a certain period. ![]()
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