Cost of sales, or cost of goods sold, measures the cost of goods or services supplied in a period. It is sometimes abbreviated to COGS. The cost of what a company sells is accrued with the cost of producing or supplying it. The cost of sales is the difference between sales and gross profit.
Because stocks may be revalued, the cost of sales in a particular period reflects both any revaluation of stocks and the methods of allocating the cost of stocks (such as the use of FIFO, LIFO, replacement cost or average cost and methods of allocating overhead costs to particular products).
As the cost of sales excludes overheads, it has a higher proportion of variable costs than the operating costs as a whole. It may contain some fixed costs such as labour costs. Nonetheless, in many cases the cost of goods sold does consist almost entirely of variable costs.