What are the components of the cost of goods sold (COGS)?

The components of the cost of goods sold (COGS) primarily include direct costs associated with the production of goods that a company sells. This encompasses expenses such as the costs of raw materials, direct labor involved in manufacturing the products, and any other expenses that can be directly attributed to the production process. When calculating COGS, it is essential to focus on these direct costs because they reflect the actual expenses incurred to create the products that generate revenue for the business.

In contrast, other options refer to costs that are not directly tied to production. Indirect operating expenses and overhead costs of management, for instance, are related to the overall operation and management of the business but do not directly involve the production of goods sold. Similarly, marketing and distribution costs are related to selling and delivering products rather than producing them. Therefore, the correct understanding of COGS is essential, as it directly impacts a company's profitability and gross margin calculations.