The cost of factory supplies such as glue, oil, and lubricantsĪs for a business that sells merchandise, COGS will mainly consist of the costs that the business incurs to acquire the goods and make them available for sale.Salaries and wages of manufacturing managers.Rent for the space or building that houses the manufacturing process.Utilities and maintenance cost of equipment used in the manufacturing process.insurance, pension, etc.).įinally, manufacturing overhead refers to all indirect costs that a business incurs in the manufacturing or production process.Įxamples of manufacturing overhead are the following:
#Cogs vs expenses plus#
It also includes the payroll taxes associated with said salaries and wages, plus any other additional compensation (e.g. The cost of direct labor includes the salaries and wages of employees that are directly involved in the manufacturing process of a product. What’s considered as direct materials will depend on the product that the business manufactures or produces.įor example, the raw materials of bread are typically eggs, flour, and yeast.ĭirect labor refers to the amount of work directly related to the manufacturing of a product. Typically, in a manufacturing setting, the COGS will consist of three types of costs: the cost of direct materials, the cost of direct labor, and manufacturing overhead.ĭirect materials refer to the raw materials used in the manufacturing of a unit of product. Rather, they accumulate a similar cost account which is the cost of services. What comprises COGS will vary from business to business.įor example, the COGS of a manufacturing company will differ from a business that purely does retail sales.īusinesses that purely sell services don’t accumulate COGS. Cost of Goods Sold (COGS): What is it?Ĭost of goods sold refers to the total amount of costs incurred that can be directly attributed to the sale of a product/s. We will learn of its definition, as well as the different costs that qualify as COGS.Īt the end of the article, I will be leaving some exercises so that you can deepen your understanding of COGS. That’s why in this article, we will be learning about COGS. Understanding how COGS works is essential if you want your business to be profitable. Selling for a lower price means that the business will incur losses. In fact, COGS is a good basis for the sales price of a product.įor example, if a product’s cost is $15 per unit, then the sales price must be more than $15 for the business to make a profit. It greatly influences the profit generation of a business.Ī business can only generate a profit if its revenue exceeds its COGS as well as operating expenses. The cost of goods sold (COGS) is an important metric for any business that sells goods. We refer to this type of cost as the cost of goods sold (COGS). On top of making a profit, the business has to cover the cost of the goods its sells. You have to consider the cost of raw materials, direct labor, and other necessary manufacturing that a business incurs as they produce them.Įven retailers and wholesalers of goods have to purchase what they sell.
It’s not like they appear out of nowhere after all.
The goods that a business sells come with a cost.
0 kommentar(er)
