COGS
The amount a business pays for the merchandise it sells
COGS stands for Cost of Goods Sold. It is an expense incurred by a company in the production or purchase of the goods that are sold to customers. COGS is an important metric in determining a company’s gross profit margin.
COGS includes all the direct costs associated with producing or purchasing a product. This includes the cost of raw materials, labor used in production, shipping and handling of goods, and any other costs directly related to producing or acquiring a product.
To calculate COGS, a company subtracts the cost of goods sold from its total revenue for a given period. For example, if a company sells $100,000 worth of goods in a month, and the cost of goods sold is $60,000, then the gross profit margin would be $40,000.
COGS is important for businesses to track because it affects their profitability. If a business can reduce its COGS, it can increase its gross profit margin. This can be done through negotiating better deals with suppliers, optimizing production processes, or finding more cost-effective ways to get products to customers.
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