Cost of goods sold (COGS) is an accounting measure that represents the direct costs of producing or purchasing the goods that a company sells. COGS is an important figure for businesses in the manufacturing, wholesale, and retail industries, as it is used to calculate the gross profit margin.

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COGS includes the cost of raw materials, direct labor, and overhead costs that are directly associated with the production or purchase of goods for sale. COGS does not include indirect costs, such as marketing, sales, or administrative expenses, which are recorded separately.

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COGS is calculated using the following formula: Beginning Inventory + Purchases - Ending Inventory = COGS. This formula takes into account the value of the goods that a company had at the beginning of a reporting period, the value of the goods that were purchased during the period, and the value of the goods that are left at the end of the period.

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By calculating COGS, companies can determine the profitability of their products and make informed decisions about pricing, production, and inventory management. COGS can also be used to calculate the gross profit margin, which is the difference between revenue and COGS, and is a key measure of a company's financial performance.

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COGS is a critical accounting concept that helps businesses to understand the costs associated with producing or purchasing the goods that they sell. By accurately calculating COGS and using it to make informed decisions about pricing, production, and inventory management, businesses can improve their profitability and financial stability.

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