This cost of goods sold template demonstrates three methods of COGS accounting: FIFO, LIFO and weighted average.
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Cost of Goods Sold (COGS) measures the “direct cost” incurred in the production of any goods or services. It includes material cost, direct labor cost, and direct factory overheads and is directly proportional to revenue. As revenue increases, more resources are required to produce the goods or service. COGS is often the second line item appearing on the income statement, coming right after sales revenue. COGS is deducted from revenue to find gross profit.
Cost of goods sold consists of all the costs associated with producing the goods or providing the services offered by the company. For goods, these costs may include the variable costs involved in manufacturing products, such as raw materials and labor. They may also include fixed costs, such as factory overhead, storage costs and depending on the relevant accounting policies, sometimes depreciation expense.
IFRS and US GAAP allow different policies for accounting for the cost of goods sold. Very briefly, there are four main types of cost of goods sold classifications.
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