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COGS
(Cost of Goods Sold)
COGS (Cost of Goods Sold) represents the direct costs attributable to producing goods sold by a company, including materials and labor but excluding indirect expenses like SG&A. It's subtracted from revenue to calculate gross profit.
COGS treatment varies by inventory method (FIFO, LIFO, or Average Cost under GAAP). Retailers might have COGS of 60-70% of revenue, while software companies just 20-30%. Analyzing COGS trends helps identify efficiency gains or input cost pressures. In manufacturing, COGS includes factory overhead, while service businesses include direct labor. Proper COGS accounting is essential for accurate tax reporting and financial analysis.
COGS treatment varies by inventory method (FIFO, LIFO, or Average Cost under GAAP). Retailers might have COGS of 60-70% of revenue, while software companies just 20-30%. Analyzing COGS trends helps identify efficiency gains or input cost pressures. In manufacturing, COGS includes factory overhead, while service businesses include direct labor. Proper COGS accounting is essential for accurate tax reporting and financial analysis.