COGS: Cost of Goods Sold for Retailers

What is COGS? Cost of goods sold (COGS) is the direct cost of producing products sold by your business. Also referred to as “cost of sales,” or “COGS report,” COGS includes the cost of materials and labor directly related to the production and manufacturing of retail products.

COGS excludes indirect costs, such as distribution and marketing. Benefits of Understanding COGS Using COGS for your retail store is crucial for a number of reasons: Understand cash flow Manage tax liability Ensure profitability Accurately price products and keep healthy margins What’s included in Cost-of-Goods (COGS)?

Direct Costs vs. Indirect Costs Direct costs are expenses that are directly tied to the production of goods or services. Indirect costs are expenses that cannot be directly attributed to the production of goods or services. COGS includes only direct costs.

Examples of Direct Costs Raw materials Labor costs directly related to production Packaging and shipping costs Manufacturing overhead How to Calculate COGS The formula for calculating Cost of Goods Sold for retail businesses is: COGS = Beginning Inventory + Purchases – Ending Inventory Beginning Inventory: The value of inventory at the…