No, for an expense to fall into the category of cost of goods sold it must be directly attributed to the making of a specific product. Are all business expenses to be considered COGS? For example, the cost incurred by a local store through buying fresh vegetables from a farmer to sell them to retail customers are considered COGS for the retail business. Furthermore, items bought for direct resale without being further processed in any way are also considered COGS. The most common examples of COGS are purchases of raw materials, parts used in manufacturing and wages of workers directly involved in the assembly of goods.
But what do those two metrics mean and how can they be interpreted? Let’s find out! What is COGS?ĬOGS, short for Cost Of Goods Sold, is a measure of the costs of a firm that are directly connected with its production process. How do managers know if they have set prices correctly? How do financial analysts determine if the production cost of a company is viable? Out of the many metrics available, COGS and Gross Profitare two measures that can give us direct information about a company’s financial status.
