The direct cost of producing products to be sold by a business. Cost of goods sold (COGS) costs of the cost of inputs (materials and labor) directly related to the production and manufacturing of the products. This cost reflects the carrying value of goods sold during a particular period, using a valuation formulas, such as specific identification, first-in first-out (FIFO), or average cost.

COGS are costs or expenses that are closely tied to a business’ revenue, margins, and net income (NI).

It is also referred to as cost of sales.