Costs of goods sold
from class:
Managerial Accounting
Definition
Costs of Goods Sold (COGS) represents the direct costs attributable to the production of goods sold by a company. This includes the cost of materials and labor directly used to create the product.
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5 Must Know Facts For Your Next Test
- COGS is subtracted from revenues to calculate gross profit.
- In process costing, COGS includes costs accumulated over multiple processes or departments.
- COGS does not include indirect expenses like distribution costs or sales force costs.
- Job order costing assigns COGS specifically to individual jobs, unlike process costing which averages costs across units.
- The calculation of COGS is crucial for financial reporting and inventory management.
Review Questions
- How is COGS calculated in process costing?
- What types of costs are included in COGS?
- Why is understanding COGS important for managerial accounting?
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