Question

Explain the concept of cost of goods sold?

Answer 1

Cost of goods sold (COGS) is the cost of merchandise that is sold to the customers.

It includes cost of raw materials purchased, direct expenses incurred, value of opening stock, i.e., the value of the last year’s unsold stock and excludes closing stock if any, i.e., the value of current year’s unsold stock.

The formula to calculate COGS is: 

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses − Closing Stock