Skip to content
GetProfitable
Search
Dictionary

Cost of goods sold

The direct cost of producing what was sold in the period: materials, factory labour, and the manufacturing overhead tied to those units.

COGS moves with volume. It excludes the costs of running the company as a whole, which sit in operating-expenses. For a software business the equivalent line is cost of revenue and contains hosting, support and third-party licence fees.

Where a cost sits changes the optics. Putting a cost in COGS lowers gross-margin; putting it in opex leaves gross margin intact but hits operating-margin. Companies rarely move costs between the lines, but when they do, the footnotes say so.

Example: Northwind Tools sells 1.2 million kits at an average $700. Materials and factory labour run $392 a kit, so COGS is $470M against revenue of $840M.

Related: gross-profit, operating-expenses, variable-costs

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.

Educational only, not advice. Spotted an error? Post in Site Feedback.