What Items Make up the Cost of Goods Sold?

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The items that make up the cost of goods sold are the materials, equipment and labor that go into creating the goods. Many marginal cost items affect the actual cost of producing and selling items.

In order to effectively calculate the cost of goods sold, it is necessary to perform an inventory count at the end of each period, whether that is monthly or quarterly. Materials include such factors as the beginning inventory and purchases made during the time period.

Changes in materials, equipment and labor will all affect the cost of goods sold. For example, suppose that a business owner sells hand-painted necklaces. If the necklace supplier begins charging $4.00 per necklace instead of $3.00, that will increase the material cost of goods sold by $1.00 per necklace.