COS vs COGS?
Cost of Goods Sold(COGS) and cost of sales are related closely to each other.
They are sometimes used interchangeably. However, the cost of sales can sometimes include some additional costs beyond COGS. For small businesses, the two terms usually mean the same and are synonymous.
Comparison
| Feature | Cost of Goods Sold | Cost of Sales |
|---|---|---|
| Primary Industry | Manufacturing or Industrial, Companies with physical products. | Service Oriental/Retail. |
| Focus | Focus on all the production Costs | A broader term and includes direct expenses related to delivering a good/service to a customer |
| Key Inclusions | Raw materials ,Manufacturing overheads, Direct Labour etc | Sales Commission,Distribution Charges etc |
What is COGS?
Cost of goods sold basically includes all the expenses that are directly linked to making or purchasing the product.
So it includes things like raw materials, labour and all the factory-related costs.
In simple terms, it is just the cost to create the product itself
| Component | Amount |
|---|---|
| Opening Stock | X |
| Add:Purchases | X |
| Less: Closing Stock | X |
| Cost of goods sold(COGS) | X |
Example
If an organisation manufactures furniture using raw materials worth ₹50,000, labour cost of ₹20,000, and manufacturing overhead cost of ₹10,000, the total cost of goods sold will amount to ₹80,000. All these costs are direct costs related to production.
What is COS?
It is a broader term than COGS. It includes all the COGS costs and all sales-related direct costs. It includes the extra cost needed to sell the product, so things like packaging, transportation or delivery charges, etc.
| Component | Amount |
|---|---|
| Opening Stock | X |
| Add:Purchases | X |
| Add:Direct Expenses(Wages,Freight,etc.) | X |
| Cost of Goods Available for Sale | X |
| Less: Closing Stock | X |
| Cost of Goods Sold(COGS) | X |
| Selling and Distribution Expenses(Packaging,Delivery,etc.) | X |
| Cost of Sales(COS) | X |
Example:
For example, if the company spends ₹5,000 on packing costs and an additional ₹5,000 on transportation costs, the cost of goods sold will total ₹90,000.
Here, the cost of goods sold is ₹80,000, but the cost of sales is higher due to other costs associated with selling.
In what circumstances do they overlap?
Under some circumstances, particularly when it comes to small businesses employing basic accounting systems, the two concepts tend to be used interchangeably.
In such situations, it is:
- There are no additional selling costs
- Business only focuses on production-related expenses.
Hence, in some small businesses, both terms are used similarly.
Quality Review Pending..