What does the cost of goods sold (COGS) include?

The cost of goods sold (COGS) primarily includes the direct costs associated with the production of goods that a company sells during a specific period. This encompasses the costs of direct materials used in manufacturing the products, direct labor costs incurred for the labor directly tied to the production, and any overhead costs that can be directly attributed to the production process, such as utilities, rent for the manufacturing facility, and depreciation of equipment used in the production. By combining these elements, COGS provides a clear view of the direct expenses related to the production of the goods sold, which is crucial for calculating gross profit and understanding the overall profitability of the company.

In contrast, other options either include costs that are not directly related to the production of goods or focus on different types of expenses that are categorized separately from COGS. Marketing expenses, for example, fall under selling and administrative expenses, and administrative costs of managing sales do not pertain to the production phase. Thus, the correct choice accurately reflects the components that make up COGS.