![]() How do you account for cost of goods sold? How do you calculate cost of goods sold?ĬOGS is calculated with the following formula: COGS includes only labour or depreciation that is directly tied to production (for example, production worker wages and equipment depreciation), whereas operating expenses include labour or depreciation not connected to production (for example, office salaries and depreciation of a corporate office building, office furniture or vehicles). Note that some items-such as labour and depreciation-may appear under both COGS and operating expenses. Some businesses report both COGS and cost of sales if they make products and are involved in retailing or wholesaling. For this reason, COGS is sometimes said to be a variable cost, while operating expenses are described as fixed costs.ĬOGS is only used by companies that make products, including those in the manufacturing, technology, aerospace, transportation, telecommunications, agricultural and food, and construction sectors.Ĭompanies that don’t make a product-for example, retailers and wholesalers-use the term cost of sales instead to refer to direct costs. This contrasts with indirect expenses, referred to as operating expenses (or SG&A, which is short for selling, general and administrative expenses), which remain the same regardless of the amount produced. Growth & Transition Capital financing solutionsĬOGS represents all costs associated with making the products that were sold during the period covered by an income statement.ĬOGS goes up or down based on the volume of production. Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) ![]() Industrial, Clean and Energy Technology (ICE) Venture Fund
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