What expenses should be included in COGS?

Operating expenses and COGS are both deducted from your company's total revenue. However, they are different in several ways. The former involves all the payments done for things unrelated to the manufacturing of your product. It includes rent, utility bills, work supplies, insurance, and legal costs.

In comparison, the cost of goods sold (COGS) means the expenses directly related to the synthesis of a product. Raw materials, machinery, manual labor, etc., fall under its umbrella.

COGS are different kinds of expenses that are subtracted from revenue to get the gross profit of the business. Expenses to be included in cogs are the ones that relate directly to the production of that product like direct labor, and materials.

The other expenses are subtracted from the gross profit to get the net profit.