Certified Supply Chain Professional (CSCP) Practice Exam

Cost of Goods Sold (COGS) includes which of the following?

1. Advertising and marketing costs

2. Inventory costs and factory overhead for goods sold

3. Operating expenses and administrative costs

4. Sales discounts and returns

The correct answer is: Inventory costs and factory overhead for goods sold

Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold by a company. This includes expenses directly tied to the manufacturing processes, such as the cost of inventory that has been sold and the factory overhead associated with production. When calculating COGS, the inventory cost encompasses the expenses incurred for raw materials, labor, and any overhead costs that are necessary to convert those raw materials into finished goods. The inclusion of factory overhead is crucial because these costs, while not direct materials or labor, are still essential to the manufacturing process and contribute to the cost of producing goods that are eventually sold. Other options, though related to the overall cost structure of a business, do not fall under the traditional definition of COGS. Advertising and marketing costs, operating expenses, and administrative costs are categorized differently, as they relate to the selling, general, and administrative expenses of running a business, rather than the direct costs of producing goods. Sales discounts and returns also do not represent costs incurred in the production of goods and are instead adjustments to revenue after sales have occurred.