ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods. COGS excludes indirect costs such as overhead and sales & marketing. COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher COGS results in lower margins.

Detailed explanation-2: -It includes all the costs directly involved in producing a product or delivering a service. These costs can include labor, material, and shipping. The idea behind COGS is to measure all costs (which are variable) directly associated with making the product or delivering the service.

Detailed explanation-3: -Cost of goods sold refers to expenses directly related to the production of a product, such as the materials needed to assemble a product and the transportation needed to bring goods from a distributor to a retailer. Both types of expenses are recorded as separate line items on a company’s income statement.

Detailed explanation-4: -The cost of goods sold is considered to be linked to sales under the matching principle. Thus, once you recognize revenues when a sale occurs, you must recognize the cost of goods sold at the same time, as the primary offsetting expense. This means that the cost of goods sold is an expense.

Detailed explanation-5: -Cost of goods sold is considered an expense in accounting and it can be found on a financial report called an income statement.