The term cost of goods sold (COGS) denotes the total cost associated with the production of a product (including materials and labor) which has been sold. COGS does not account for the costs of products which have not yet been sold.
The cost associated with producing and selling a product provides a good indicator of the profit earned on the sale of the product. The profit will typically be the difference between the price at which a product is sold (accounting for discounts and returns) and the COGS. However, it is important to note that the COGS may not account for all costs associated with running a business.
Comparing a company’s COGS to its gross revenue helps prospective investors to understand the company’s gross margin – its true revenue after deducting production costs.
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