What is included in the cost of goods sold (COGS)?

The cost of goods sold (COGS) specifically includes the direct costs attributable to the production of goods that have been sold by a company. This encompasses various expenses directly associated with the manufacturing or acquisition of those goods, such as raw materials, direct labor costs involved in production, and any other direct costs that can be directly traced to the production process.

When calculating COGS, the focus is on all expenses that are necessary to bring a product to its current salable condition. Therefore, including direct costs related to the production of sold goods ensures an accurate reflection of the expenses incurred in producing those goods, which is crucial for determining gross profit and overall financial performance.

The other options present costs that do not fall under the direct production category. Indirect costs of production, operational expenses, and administrative expenses are considered overhead or operational costs rather than direct costs associated with goods sold, highlighting why they would not be included in COGS.