Cost Of Goods Sold (COGS)

Cost of goods sold (COGS) is what a company spends to obtain or make the goods it sells. For a retailer, that is often the price paid to the supplier. For a manufacturer, it usually includes materials and production labor.

On the income statement, COGS is subtracted from sales to calculate gross profit. Store or office rent, salaries of people who are not making the product, and advertising are operating expenses.