Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Guide 6 of 34 · The Income Statement
What Is Cost of Goods Sold on an Income Statement?
Dollars went up. The percent went down. That is good news.
Cost of goods sold sits right under revenue, and it is usually the biggest cost a product company has. Apple spent $221 billion on it in fiscal 2025. The dollar figure barely matters. The share of each sales dollar it eats is the number to watch.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is Cost of Goods Sold?
Textbook Definition
Cost of goods sold (COGS) is the direct cost of producing the goods a company sold during the period, such as materials and parts. Revenue minus COGS equals gross profit.
In Plain English
It is what the stuff you sold cost you to make or buy. If you build bicycles, the tires, pedals, and that squeezable horn are cost of goods sold. Rent and advertising are not. Those come further down.
Gross Profit
Revenue − Cost of Goods Sold
Apple, fiscal 2025: $195.2B
COGS as % of Sales
Cost of Goods Sold ÷ Revenue
Apple, fiscal 2025: 53.1%
Some service companies show no COGS line at all. When a company does show one, it almost always sits directly below revenue. On Apple’s 10-K it is labeled total cost of sales.
One Real Company
Apple’s Cost of Goods Sold, 2021 to 2025
Read the percent row, not the dollar row. Dollars rise and fall with sales. The percent shows whether each sale is keeping more.
| Line | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Revenue | 416,161 | 391,035 | 383,285 | 394,328 | 365,817 |
| Cost of goods sold | 220,960 | 210,352 | 214,137 | 223,546 | 212,981 |
| Gross profit | 195,201 | 180,683 | 169,148 | 170,782 | 152,836 |
| COGS as % of revenue | 53.1% | 53.8% | 55.9% | 56.7% | 58.2% |
| COGS growth | 5.0% | −1.8% | −4.2% | 5.0% | n/a |
| Gross profit margin | 46.9% | 46.2% | 44.1% | 43.3% | 41.8% |
Source: Apple Form 10-K filings as analyzed in the book. $ millions.
The Method
How to Analyze COGS in 5 Steps
Find the line under revenue.
Apple calls it total cost of sales. Other companies say cost of revenue or cost of sales. Same idea.
Divide by revenue.
COGS ÷ revenue gives you the share of each sales dollar spent on the product itself.
Watch the trend for five years.
Rising percent: materials cost more and the company is not passing it on in price. Falling percent: better deals on parts, or a richer product mix.
Ask what is driving it.
For Apple, the book points to its growing high-margin services business as a big part of the falling percent.
Compare to a rival that sells the same kind of thing.
A software company and a device maker will never have similar COGS. Compare like with like.
The Steady-Is-Good Rule
In a perfect world, COGS holds steady as a share of sales. That means little surprise in what materials cost. A falling share is even better, as long as it comes from smarter buying or a better mix, not from cutting quality that customers will notice later.
Compare It
Apple vs. Microsoft: Devices vs. Software
| Latest fiscal year | Apple | Microsoft |
|---|---|---|
| Gross margin | 47% | 69% |
| What they mostly sell | Physical devices | Software and cloud |
| Revenue | $416B | $282B |
Microsoft’s fiscal year ends in June, Apple’s in September. Figures from the book.
Software costs very little to copy. A phone has real parts. That one difference shapes everything below the top line. Gross margin and net margin are compared side by side in gross margin vs. net margin.
What Counts
What Goes Into Cost of Goods Sold, and What Does Not?
The test is simple. Would the cost exist if the company sold one fewer product? Parts, raw materials, and the direct cost of building or buying what was sold belong in COGS. They rise and fall with sales.
Overhead does not. Office rent, advertising, executive salaries, and research spending all sit lower on the income statement as operating expenses. They are real costs, but they do not move one-for-one with each unit sold.
Inventory connects the two. When a company buys parts, they sit on the balance sheet as inventory. They only become cost of goods sold when the finished product is sold. That is why a company can spend a lot on stock one year and see COGS rise the next.
Beginner Traps
COGS Mistakes Beginners Make
- Judging COGS in dollars instead of percent of sales.
- Comparing a device maker’s COGS to a software company’s.
- Putting rent or advertising into COGS.
- Reading one year instead of the five-year trend.
- Assuming a falling percent always means better buying.
- Forgetting that service companies may have no COGS line.
How the Book Grades Apple’s COGS
From the Book
The Real Difference
Income Statement · Cost of Goods Sold
Apple vs. Microsoft
A large share of Microsoft’s sales is software, which costs very little to reproduce, while Apple builds physical devices with real material costs.
Every income statement line, five years of Apple, Microsoft alongside, and a grade for each. It is all in the book.
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Cost of Goods Sold Questions
What is included in cost of goods sold?
Where is cost of goods sold on the income statement?
Is a lower cost of goods sold percentage better?
Keep Going
Related Guides
COGS is the first step down the income statement. See the full guide for every line.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice, and nothing here is a recommendation to buy or sell any security. Apple and Microsoft figures come from their public filings as analyzed in the book. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.