Certified Fraud Examiner Practice 2026 - Free Practice Questions and Study Guide

The concept of 'cost of goods sold' (COGS) refers to the total cost of producing and selling products that a company has sold during a specific period. This includes costs directly tied to the production of goods, such as materials, labor, and production overhead. Understanding COGS is crucial for determining a company's gross profit, which provides insight into the efficiency of production processes and pricing strategies.

When analyzing financial performance, accurately accounting for COGS allows businesses to assess how effectively they are managing production costs in relation to their sales. This metric is foundational in understanding profitability since it directly impacts the calculation of gross profit.