Glossary › Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS)
The direct costs of producing what you sold — materials, direct labour, freight. Revenue minus COGS equals gross profit.
COGS captures the direct costs of the goods or services actually sold in the period: raw materials, direct labour, manufacturing costs, freight in. For service firms the equivalent is often called cost of sales.
Revenue minus COGS gives gross profit; tracking COGS accurately is what makes gross margin a truthful number rather than a flattering one.
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