Which costs are typically included in COGS?

Which costs are typically included in COGS?

• A. Rent expenses
• B. Raw materials used in production
• C. Marketing and advertising costs
• D. Utilities and overhead costs

Answer: (B)

COGS represents the costs tied directly to making the goods that were sold. The most fundamental component is raw materials used in production, since these are the inputs that become part of the finished product. Rent expenses, marketing and advertising costs, and utilities or overhead not directly linked to manufacturing are typically treated as period or selling/administrative expenses rather than costs of producing the goods. In some cases, factory-related overhead (like factory utilities) can be allocated to COGS, but the classic example of a COGS item is raw materials used in production.

COGS represents the costs tied directly to making the goods that were sold. The most fundamental component is raw materials used in production, since these are the inputs that become part of the finished product. Rent expenses, marketing and advertising costs, and utilities or overhead not directly linked to manufacturing are typically treated as period or selling/administrative expenses rather than costs of producing the goods. In some cases, factory-related overhead (like factory utilities) can be allocated to COGS, but the classic example of a COGS item is raw materials used in production.