What Is Cost of Goods Sold and How Do You Calculate It?
Cost of goods sold, also referred to as cost of sales, is the total direct costs attributed to producing your sales. It’s found on your income statement.
What Is Cost of Goods Sold?
Cost of goods sold generally includes your variable expenses, such as raw materials or direct labor, and excludes the costs that are general to your company—the overhead and SG&A expenses—such as marketing efforts. However, some businesses may include fixed costs, such as warehouse or storage expenses. The cost of goods sold is listed as an expense line on your income statement because it’s a cost of doing business.
Calculating your cost of goods sold informs your pricing analysts of your breakeven point and pricing strategies.
When you subtract your cost of goods sold from your total sales, you get your gross profit.
When you subtract your cost of goods sold and all other expenses from your total sales, you get your net income.
Recommended Resources
What Is Financial Reporting and Why Is It Important?
Learn More
The Ultimate Guide to Budgeting and Forecasting
Learn More