The cost of goods sold (COGS) is the sum of all direct costs associated with manufacturing a product. It appears on a manufacturer’s income statement and typically includes money spent on raw materials and labour as well as amortization expenses. It does not include costs associated with marketing, sales or distribution.
Managers use cost of goods sold to determine the value of units in inventory. Taken as a percentage of revenue, the cost of goods sold also determines manufacturing efficiency.
Cost of goods sold does not appear on the income statements of retailers or wholesalers, who instead incur a cost of sales.
More about cost of goods sold
The sample income statement below shows the cost of goods sold for a manufacturing company that produced 10,000 units of a single product for $3.50 each and sold each unit for $10.