The cost of goods sold (COGS) is the total cost of acquiring the merchandise or services that a company sells to its customers. It includes the purchase price, returns, freight and storage charges, allowances, and any other costs associated with acquiring the goods or services.
COGS is one of the primary components of a company’s income statement and is used to calculate gross profit. The formula for calculating COGS is purchase price minus returns and allowances, plus freight charges and storage costs. Freight and storage costs are additional costs that the company incurs in shipping the goods or services to its customers. By subtracting the COGS from the company’s total sales, the company can calculate its gross profit.
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