Cost of Goods Sold (COGS) Explained

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Cost of Goods Sold (COGS)

What is Cost of Goods Sold?

COGS represents the direct costs of producing the goods or services sold by a business, including materials and labour.

Explanation

COGS is used in calculating gross profit:

Gross Profit = Revenue – COGS

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It includes:

Raw materials
Direct labour
Manufacturing overhead tied to production

Lowering COGS can improve profitability — but not at the expense of quality.

Practical Example of COGS

A furniture maker sells a table for £800. The wood, labour, and tools cost £500. That £500 is the cost of goods sold.

How Bizcap Can Help:
Bizcap can help you fund bulk inventory purchases or process upgrades that reduce your unit costs and improve margins.

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