Posted in Finance, Accounting and Economics Terms, Total Reads: 216
Definition: Outsourced Cost Of Goods Sold
Outsourced Cost of Goods Sold means the cost associated to produce the particular product or service is transferred to third party rather than going for in house, Hence this reduced the COGS thereby increasing the gross revenue of the company.
Cost of goods sold is commonly referred to as COGS. It means the direct cost that a company or organization have incurred to produce that product or service which will be later sold in the market.
Every company borne the cost in creation of product which will be delivered in the market which will go for sale, these type of cost include material costs, labour costs, operating costs such as building rental and electricity cost forms the part of the final price of the product.
You go to a HiDesign Shop and purchase a Bag for yourself costing 3999Rs. This Rs3999
will have several parts associated with it which has made the bag to cost Rs 3999 like the procurement of leather, thread for stitching, sewing machine, electricity used for the same, labour costs. The important to note here is that indirect costs like Advertising and marketing costs, transportation costs are not included in the COGS.
Cost of Goods Sold is considered as an expense for a company and it can be deducted from the revenue of the company to determine the Gross Revenue.
Now let us understand What does Outsourcing means?
Outsourcing is a method by which a company transfer their share of work outside to reduce the cost ,For example a Nike Makes variety of shoes and other apparels but to transport those products they make use of 3rd party fleet not their own fleet(they don’t have any) this is done primararily because to reduce the cost associated.
Hence the Outsourced Cost Of Goods Sold becomes the cost incurred by outsourcing rather than producing it by the company itself. In this case, the cost is less as outsourcing normally is cheaper.