When a business consistently sells goods and services, it’s easy to assume they’re profitable. However, it’s not cut and dry. Consistent sales don’t mean a business is breaking even and making profit. Cost of goods sold is a calculation that can help a business determine how profitable they really are and how much their good costs to produce. What Is Cost of Goods Sold? Cost of goods sold is a calculation that takes into account nearly every expense required for a business to create a product or service. That includes the cost of manufacturing items and labor. Other examples of items included in the cost of goods sold calculation are: Materials used Items purchased for resale Factory labor Shipping costs Packaging Storage costs Commissions for salespeople It’s important to also know which costs aren’t included in the calculation. Examples include marketing, rent, insurance, admin costs, utilities, or buying equipment to produce products. Mostly, things that are considered overhead costs aren’t factored into the COGS calculation. Knowing the cost of goods sold is helpful because it can give businesses an accurate picture of their expenses, costs