Cost of goods sold (COGS)
What are COGS?
COGS is the total business costs used to create goods or services that have been sold. COGS, when subtracted from gross profit, helps measure a business’ profitability and evaluate its efficiency.
Different types of companies have different costs. Typically, COGS could include:
COGS For Wholesale or Retail businesses:
- Factory overhead
- Raw materials, used in production
A good COGS example would be Apple, which would include the material costs for the parts that go into making the iPhone plus what it might cost to put the phone together. However, labour and operator costs are not included.
COGS For Business Services
- Hosting costs (Website hosting, server hosting, etc.)
- Salaries, bonuses, and benefits
- Payroll taxes
- Equipment needed to provide the services sold
For example, the costs of the website operational hosting is related to three expenses: configuration, services rendered and support. But distributing other products to existing customers would not be covered.
The issue of how to account for costs in a commercial context is complicated. Businesses must make sense of all the rules and regulations that are established by U.S. federal agencies, such as the Securities and Exchange Commission (SEC) – but, so long as they follow them, their books will balance out