Cost of Good Sold
What does it mean
Cost of Goods Sold is the sum total of the direct costs that went into whatever good is being sold. If you can attribute an expense directly to the item being sold, it is a cost of goods sold. For example, if you were selling a bag of coffee, the cost of goods sold would include the following:
- Cost of the coffee
- Cost of the label
- Cost of the bag
- Cost of the direct labor
Things that cannot be directly attributed to an item being sold would include thing like:
- Office staff wages
- Advertising
- Rent
- Office Supplies
Why does it matter
Cost of Goods Sold matters because if the business does not have a solid understanding of their costs into the items they are producing, they have a lower chance of producing sufficient gross profit to cover their expenses and produce a profit.
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