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Day 7

Cost of Sales

In today’s lesson we cover an expense line item called the Cost of Sales (sometimes referred to as Cost of Goods Sold or COGS). This includes all the “ingredients” that go into producing a product. Watch the lesson below and then try out the homework question to test your understanding. After watching the video below, scroll down to the bottom for your homework.

Your Homework

What ingredients contributed to the COGS of Nike sneakers? What costs would be excluded?

Scroll down to see the answer.

Answer

COGS for Nike sneakers would include the raw materials to make them, such as: leather, eyelets, laces, logo printings, tongue, bottom soles. You would also include the costs of delivering the sneakers, such as: foam, shipping boxes, packing paper, postage. And finally, you would want to include any direct labor involved in making the product. In this case it would be mainly the factory floor direct labor. All of these are the “ingredients” that go into making and delivering the product.

Costs that would NOT be considered COGS would include the labor that went into the intellectual property like designers and product managers, the marketing and promotion costs such as athletes, tv ad production, ad placements and sales and marketing employee salaries.

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