COGS stands for Cost of Goods Sold, which is the cost of producing or purchasing goods that have been sold during a specific period of time. It includes the cost of direct materials, labor, and overhead involved in the production or purchase of goods, and is subtracted from the revenue generated from the sale of those goods to determine the gross profit for the period.
For example, if a company sells $100,000 worth of products during a month, and the cost of producing or purchasing those products is $60,000, the COGS for that month would be $60,000. This would result in a gross profit of $40,000 for the month.
Understanding and tracking COGS is important for businesses to accurately calculate their gross profit and determine the profitability of their products. By keeping a close eye on COGS, businesses can make informed decisions about pricing, inventory management, and other key aspects of their operations.