A crucial part of running a business is determining how much it costs to produce an item. Cost of goods sold (COGS) is a term used in business to refer to the cost incurred when producing goods for sale, including any related materials and direct labor costs. COGS may also include packaging or transporting those products from their point-of production all the way until they're delivered at an end destination where consumers buy them! The formula is: COGS = Starting inventory + Purchases − Ending inventory