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Cost of Goods Sold (COGS)
The direct costs associated with the production or procurement of goods that a company sells, including raw materials and direct labor.
Implications
The direct costs associated with producing or purchasing the goods that a company sells, including materials, labor, and manufacturing overhead, critical for calculating gross profit.
Example
Example: A clothing retailer calculates COGS by adding up the costs of fabric, labor, and factory overhead for the garments sold during the year, which is then subtracted from revenue to determine gross profit.
Related Terms
Different from operating expenses, which include indirect costs like rent and utilities, COGS is directly tied to the production or acquisition of goods sold.
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