Cost of goods sold

From Wikicpa

Cost of goods sold is an accounting term referring to the direct expenses related to creating and producing a product. An income statement figure which reflects the cost obtaining raw materials and producing finished goods that are sold to consumers. Cost of Goods Sold = Beginning Inventory + Net Purchases of Merchandise - Ending Inventory.

For example:

Beginning Inventory = $25,000

Net Purchases of Merchandise = $30,000

Ending Inventory = $35,000

Cost of goods sold = 25,000 + 30,000 - 35,000 = $20,000.

In standard accounting practices, gross margin can be calculated by subtracting the cost of goods sold from total sales.

Types of expenses that are considered "cost of goods sold" include:

• The cost of product or raw materials, including the cost of having them shipped to you.
• The cost of storing the products you sell.
• Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products.
• Factory overhead expenses.