Cost of Goods Sold

Cost of goods sold means the direct cost of producing or buying the physical products a company sells. In simple terms, it is the cost of the goods that were sold. Cost of goods sold is important because it helps calculate gross profit. If this cost rises faster than revenue, the company’s profitability may weaken. For example, if a retailer buys products for $60 and sells them for $100, the $60 is part of cost of goods sold. Cost of goods sold is not the same as total expenses. It usually excludes costs like marketing, office rent, research, and administration.