Includes the direct costs attributable to the production of the goods sold by a business. This includes the materials cost used in creating or buying the goods along with the direct labor costs used to producing or procuring the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company’s gross margin. Formula: COGS = Beginning Inventory + Purchases – Ending Inventory

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