Cost of goods sold (COGS) is a financial accounting term that refers to the direct costs associated with producing and selling goods or services. COGS includes the cost of the materials used to produce the product, the direct labor costs, and any other direct costs associated with the production of the goods or services.
The COGS is an important metric for businesses as it represents the direct expenses that are required to create and deliver the products or services that generate revenue. By subtracting COGS from the total revenue, a business can determine its gross profit, which is the profit before accounting for indirect expenses such as overhead and marketing.