What is Total Cost of Goods Sold?
Total cost of goods sold (COGS) is an accounting term used to denote the total cost of purchasing raw materials or manufacturing products that have been sold during a given period. It is calculated by subtracting the cost of unsold inventory from the total cost of all the goods produced in that period.
Calculating Total Cost of Goods Sold
COGS is calculated by adding the cost of all the materials, labor, overhead, and other costs that go into producing a product. This includes raw materials, direct labor, manufacturing overhead, freight, taxes, and any other related costs.
Examples of Total Cost of Goods Sold
- A clothing store buys fabric and pays for labor, shipping, and other costs to produce shirts. The total cost of the shirts sold during the period is the COGS.
- A manufacturer produces cars and pays for the parts, labor, and other costs associated with producing the cars. The total cost of the cars sold during the period is the COGS.
- A farmer grows and harvests crops. The cost of the crops sold is the COGS.
Conclusion
Total cost of goods sold is an important concept for businesses to understand, as it helps them to calculate their profits and losses. By understanding the COGS, businesses can identify areas where they can reduce their costs and increase their profits. For more information, please visit: