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TERM
COGS (Costs of Goods Sold)
Direct costs to produce and ship goods.
Definition
Cost of goods sold includes materials, labor, and freight directly tied to the product.
How to Calculate
Sum direct costs per unit and multiply by units sold.
Why it Matters
Determines gross margin and price floors.
Key Advantages
Clarifies profitability by item.
Example
COGS of $1.80 on a $3.00 item yields 40 percent margin.
Use it to
Track direct product costs to evaluate gross margin and promotion profitability. Link price and trade decisions to COGS to prevent negative margin outcomes.
