The direct costs attributable to the production or purchase of goods sold by a company during a specific period.
COGS includes raw materials, direct labor, and manufacturing overhead directly tied to production. It does NOT include indirect expenses like marketing, rent, or administrative salaries. COGS is deducted from revenue to calculate gross profit. For trading businesses, COGS equals opening stock + purchases − closing stock. Accurate COGS calculation is essential for pricing decisions and profitability analysis.
A bakery starts the month with ₹20,000 of flour and ingredients, purchases ₹80,000 more during the month, and has ₹15,000 left at month-end. COGS = ₹20,000 + ₹80,000 − ₹15,000 = ₹85,000.
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COGS are direct costs of producing goods (materials, labor). Operating expenses are indirect costs of running the business (rent, marketing, admin salaries). Both are subtracted from revenue but at different levels of the P&L statement.
Service businesses use 'Cost of Services' instead, which includes direct labor costs and expenses directly tied to delivering services.
The profit a company makes after deducting the cost of goods sold (COGS) from its revenue, before accounting for operating expenses.
A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.
A financial statement that summarizes a company's revenues, costs, and expenses over a specific period to show net profit or loss.
The amount or percentage added to the cost price of a product to determine its selling price, covering overhead expenses and generating profit.
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