Definition:

Cost of Goods Sold (COGS), excluding Depreciation & Amortization, refers to the direct costs attributable to the production of the goods sold by a company. This includes the cost of materials and labor directly used to create the product but excludes indirect expenses such as depreciation and amortization.

Examples

Examples of COGS excluding depreciation and amortization include the cost of raw materials, direct labor costs, and manufacturing supplies used in the production of goods.

Formula:

COGS = Beginning Inventory + Purchases During the Period - Ending Inventory

How to use the metric:

COGS is used to determine the gross profit of a company by subtracting it from total revenue. It helps businesses assess the efficiency of their production processes and manage their pricing strategies.

Limitations:

COGS does not account for indirect costs such as overhead, depreciation, and amortization, which can lead to an incomplete picture of total production costs. It may also vary significantly between companies due to different accounting methods.

Applies to:

COGS is most applicable in manufacturing, retail, and wholesale industries where the production and sale of physical goods are involved.

Doesn't apply to:

COGS is less relevant in service-based industries where there are no physical goods to account for, as the primary costs are related to labor and overhead rather than materials.

Summary:

Cost of Goods Sold (COGS), excluding Depreciation & Amortization, is a key financial metric that helps businesses understand the direct costs associated with producing goods. While it provides valuable insights into production efficiency and profitability, it does not capture all costs, particularly indirect ones, and is most useful in industries dealing with physical goods.